Question

"Consider the following cash flows for projects X and Y. Assume the firm can only select one of the projects. What is the MARR such that the firm is indifferent between selecting Project X or Y? Enter your answer as a percent between 0 and 100, rounded to the nearest tenth of a percent. You might consider an incremental approach.
Project X (for n = 0 through 4) $ :
-11,100
8,400
4,574
1,340
610
IRR : 21.1%
Project Y (for n = 0 through 4) $ :
-5,703
4,653
2,287
1,340
610
IRR : 30.8%"

Answer 1

here incremental approach should be used

It is assumed tha project X is choosen over Project Y

Hence Incremental cash out flow = -11100 - (-5703) = -5397 $

Incremental cash inflow for year 1 = 8400 - 4653 = $ 3747

Incremental cash inflow for year 2 = 4574 - 2287 = $ 2287

Incremental cash inflow for year 3 and Incremental cash inflow for year 4 = 0

Now, one shall find IRR . IRR is rate at which NPV is 0

Assume r = 8%, then NPV

Year	Incremental cash flow	PVIF @ 8%	PV
0	-5397	1.0000	-5397.00
1	3747	0.9259	3469.44
2	2287	0.8573	1960.73
Total = NPV	33.18

Assume r = 9% ,then NPV

Year	Incremental cash flow	PVIF @ 9%	PV
0	-5397	1.0000	-5397.00
1	3747	0.9174	3437.61
2	2287	0.8417	1924.92
Total = NPV	-34.46

Using interpolation method one can find r

R	NPV
8%	33.18
9%	-34.46
1%	67.64
?	33.18

=33.18/67.64

=0.49

Thus IRR = 8%+0.49% = 8.49%

Thus at MARR of 8.49% , firm will be indifferent between selecting Project X or Y