Q.1. Three mutually exclusive investment alternatives are under consideration. The initial capital outlays and the pattern of the net annual cash benefits (revenues - expenses) for each alternatives are presented in the following table. Based on NPV analysis, if the company’s minimum acceptable rate of return is 10%, which alternative should be the best economic choice? Use appropriate IRR analysis to double-check your selection.
Investment, M$
A
B
C
Initial cost
-$200
-$350
-$500
Net Revenues, year 1 to 3
$80
$105
$85
Net Revenues, year 4
$60
$90
$150
Net Revenues, year 5
$40
$250
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