Internal rate of return - incremental analysis, Managerial Economics

The following contains cost and benefit information for two different alternatives for a w capital investment in computerized process technologies to control the process at a manufacturing plant (this is a tremendous upgrade from the current process).


CMM-PLC Option

FMS-Integrated Option

Initial Investment

$ 15,000,000

$ 18,000,000

Annual O&M Costs



       Annual Labor Costs



       Annual Material Costs



       Annual Overhead Costs



       Annual Tooling Costs



       Annual Income Taxes



Net Annual Benefits (revenue increase & maintenance savings)

$ 6,500,000 

$ 7,000,000

Net Salvage Value

$ 500,000

$ 750,000




Use internal rate of return (IRR) and the appropriate incremental analysis to determine the best alternative.  Use 8% as the minimum attractive rate of return (MARR) and assume an 8 YEAR useful life for both projects.

Posted Date: 2/16/2013 12:32:31 AM | Location : United States

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