Chapter 7:

Rate-of-Return Analysis
Fundamentals of Engineering Economics, 3rd Ed.

By Park, C.S.

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 1

Objectives
 To understand the meaning of the Rate Of Return (ROR)
 To understand the classification of investment projects, namely,
simple and non-simple investment projects
 To be able to apply the methods of determining the ROR for an
alternative or a project
 To understand the meaning of the Internal Rate of Return (IRR)
 To learn how to decide to accept or reject a project based on its
IRR compared to the MARR
 To learn how to select an alternative of Mutually Exclusive
Alternatives (projects) based on incremental analysis of the IRR
ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 2
Rate of Return (ROR) Analysis
 The Project will bring in
a 15 % rate of return on
the investment

 The project will result in

a net surplus of $10,000
in terms of PW

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 3

Rate of Return (ROR) Analysis
 Rate of Return (ROR)

 Methods for Finding ROR

 Internal Rate of Return

(IRR) Criterion

 Incremental Analysis

 Mutually Exclusive
Alternatives

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 4

Rate of Return
 Definition: A relative percentage method which
measures the yield as a percentage of investment over
the life of a project
• Yield
• Internal rate of return
• Marginal efficiency of capital

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 5

Rate of Return
 Example: In the end of 1970, when Wal-Mart Stores, Inc.
went public, an investment of 100 shares costs $1,650. That
investment would have been worth $8,939,520 in the
beginning of 2008. What is the rate of return on that
investment?
 Given: P = $1,650, F = $8,939,520, N = 37; find i.
$8,939,520
Solution:
$8,939,520 = $1,650 (1 + i )37
i = 26.16%
0
37
Rate of Return
ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM
$1,650 6
An Alternate Course of Action
 Suppose that a person deposited that amount
($1,650) in a savings account at 6% per year. Then, he
could have only $14,250 at the beginning of 2008.

 What is the meaning of this 6% interest here?

 This is the opportunity cost if putting money in a

savings account was the best that person can do at
that time!

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 7

An Alternate Course of Action
 So, in 1970, as long as you earn more than 6% interest
in another investment, you will take that investment

 Therefore, that 6% is viewed as a minimum attractive

rate of return (or required rate of return)

 Then, you can apply the following decision rule, to see

if the proposed investment is a good one
ROR (26.16%) > MARR(6%)
ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 8
Return on Investment: Definition 1
 Definition 1: Rate Of Return (ROR) is defined as the
interest rate earned on the unpaid balance of an
installment loan

 Example: A bank lends $10,000 and receives annual

payment of $4,021 over 3 years. The bank is said to earn a
return of 10% on its loan of $10,000

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 9

Return on Investment: Definition 1
Solution:
A = $10,000 (A/P, 10%, 3) = $4,021
Unpaid Return on Unpaid
Payment
Year balance at unpaid balance at
received
beg. Of year balance (10%) end of year
0 -$10,000
1 -$10,000 -$1,000 $4,021 -$6,979
2 -$6,979 -$698 $4,021 -$3,656
3 -$3,656 -$366 $4,021 0

The three payments repay the loan itself and provide a

return of 10% on the amount still outstanding each year
ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 10
Return on Investment: Definition 2
 Definition 2: Rate of return (ROR) is the break-even
interest rate, i*, at which the net present worth of a
project is zero.

 Mathematical Relation:
PW(i*)  PW(i*)cash inflows  PW(i*)cash outflows
0

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 11

Return on Investment: Definition 2
 Example: Reconsider the bank loan example
$4,021 $4,021 $4,021

0
1 2 3
Rate of Return = 10%

PW(10%)Outflow  $10,000
$4,021 $4,021 $4,021
$10,000 PW(10%)Inflow     $10,000
(10.1) (10.1) (10.1)
2 3

PW(10%)  PW(10%)Inflow PW(10%)Outflow  0

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 12

Return on Investment (IRR): Definition 3

 Definition 3: The Internal Rate of Return (IRR) is the

interest rate charged on the unrecovered project balance
of the investment such that, when the project terminates,
the unrecovered project balance is zero

 Example: A company invests $10,000 in a computer with

a three-year useful life and equivalent annual labor savings
of $4,021

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 13

Return on Investment (IRR): Definition 3

Project Balance
Unpaid Return on Unpaid
Payment
Year balance at unpaid balance at
received
beg. Of year balance (10%) end of year
0 -$10,000
1 -$10,000 -$1,000 $4,021 -$6,979
2 -$6,979 -$698 $4,021 -$3,656
3 -$3,656 -$366 $4,021 0

We see that 10% is earned (or charged) on $10,000 during

year one, 10% is earned on $6,979 during year two, and 10% is
earned during year three. Or, the firm earns a 10% rate of
return on funds that remain internally invested in the project.
ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 14
Methods for Finding ROR
 Types of Investment (cash flow) Classification
• Simple Investment
• Non-simple Investment

 Once we identify the type of investment cash flow,

there are several ways to determine its rate of return

 Computational Methods
• Direct Solution Method
• Trial-and-Error Method
• Using Software
ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 15
Simple vs. Non-simple Investments
 Simple investment
• An investment in which the initial cash flows are negative and
only one sign change occurs in the net cash flow series – a
unique rate of return

 Non-simple investment
• An investment in which the initial cash flows are negative and
more than one sign change occurs in the net cash flow series –
a possibility of having more than one rate of return

 Note: We ignore a zero cash flow in determining the sign change

 What does no sign change in the entire cash flow series mean?
ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 16
Classification of investments
 Simple investment
• Definition: Initial cash flows are negative, and only one sign
change occurs in the net cash flows series
• Example: -$100, 0, $250, $300 (-, +, +)
• ROR: A unique ROR
• If the initial flows are positive and one sign change occurs, this
is referred to as simple-borrowing
 Non-simple investment
• Definition: Initial cash flows are negative, but more than one
sign changes in the remaining cash flow series.
• Example: -$100, $300, -$120 (-, +, -)
• ROR: A possibility of multiple RORs
ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 17
Classification of investments

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 18

Finding IRR
 Direct Solution Method:
• For simple projects that contain only two-flow transaction
or projects with service lives up to two years of return

 Trail-and-Error Method:
• For complex projects

 Using Software:
• Excel can be utilized to calculate IRR

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 19

Finding IRR: Direct Solution
 Example 7.2: Find i* using direct solution method

n Project 1 Project 2
0 -$3,000 -$2,000
1 0 $1,300
2 0 $1,500
3 0
4 $4,500

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 20

Finding IRR: Direct Solution
 Example 7.2: Find i* using direct solution method
Solution: Project 1 Project 2
$1,300 $1,500
$3,000(1  i)4  $4,500 PW(i)  $2,000   0
(1  i) (1  i) 2

(1  i)4  1.5 Let x 

1
, then
1 i
4ln(1  i)  ln1.5
PW(i)  2,000 1,300x 1,500x2
ln(1  i)  0.101365 Solve for x :
x  0.8 or -1.667
e0.101365  1  i
Solving for i yields
ie 1
0.101365
1
0.8   i  25%,
1 i
 10.67%
1
1.667   i  160%
1 i
Since 100%  i  , the project's i*  25%.
ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 21
Finding IRR: Trail-and-Error Method
 Example: Find i* using Trial-and-Error method
$55,760

n Cash Flow $27,340

$24,400
0 -$75,000
0
1 24,400 1 2 3

2 27,340
3 55,760

$75,000

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 22

 Finding IRR: Trail-and-Error Method
 Example: Find i* using Trial-and-Error method
Solution:
Step 1: Guess an interest rate, say, i = 15%
Step 2: Compute PW(i) at the guessed i value.
PW (15%) = $3,553
Step 3:
• If PW(i) > 0, then increase i. 3,553

• If PW(i) < 0, then decrease i. 0

PW(18%) = -$749 -749
Step 4: If you bracket the solution, you use
a linear interpolation to approximate the solution
15% i 18%

 3,553 
i  15%  3%    17 . 45 %
ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM
 3,553  749  23
 Finding IRR: Trail-and-Error Method
 Example 7.3: Find i* using Trial-and-Error method
ACME Corporation distributes agricultural equipment. The board of
directors is considering a proposal to establish a facility to manufacture
an electronically controlled "intelligent" crop sprayer invented by a
professor at a local university. This crop-sprayer project would require
an investment of $10 million in assets and would produce an annual
after-tax net benefit of $1.8 million over a service life of eight years. All
costs and benefits are included in these figures. When the project
terminates, the net proceeds from the sale of the assets would be $1
million (Figure 7.2). Compute the rate of return of this project.

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 24

Finding IRR: Trail-and-Error Method
 Example 7.3: Find i* using Trial-and-Error method
Given: = $10M, A = $1.8M, S = $1M, N = 8 years

Figure 7-2 Cash flow diagram for a simple investment

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 25

 Finding IRR: Trail-and-Error Method
 Example 7.3: Find i* using Trial-and-Error method
Solution:
Step 1: Guess an interest rate, say, i = 8%
Step 2: Compute PW(i) at the guessed i value.
PW (8%) = -$10 +$1.8(P/A, 8%, 8) +$1(P/F, 8%, 8) = $0.8M
Step 3:
• If PW(i) > 0, then increase i.
• If PW(i) < 0, then decrease i.
Since NPW is positive, raise i, in order to bring this value toward zero.
Use i = 12%.
Therefore,
PW (12%) = -$10 +$1.8(P/A, 12%, 8) +$1(P/F, 12%, 8) = -$0.65M
Using straight-line interpolation, we approximate that
i*= 8% +(12% - 8%) [0.88 /0.88 + 0.65] = 8 + 4(0.5752) = 10.30%
ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 26
 Finding IRR: Trail-and-Error Method
 Example 7.3: Find i* using Trial-and-Error method
Solution:
PW (10.30%) = -$10 +$1.8(P/A, 10.3%, 8) +$1(P/F, 10.3%, 8) = -$0.045
Since the result is not zero, we may re-compute i* at a lower interest rate

PW (10%) = -$10 +$1.8(P/A, 10%, 8) +$1(P/F, 10%, 8) = $0.069M

With another straight-line interpolation, we approximate that

i*= 10% + (10.30% - 10%)[0.069/0.069 + 0.0455] = 10 + 0.30(0.6053) = 10.18%
PW (10.18%) = -$10 +$1.8(P/A, 10.18%, 8) +$1(P/F, 10.18%, 8) = $0.0007

Which is practically zero, so we may stop here.

Estimation via computer gives us i = 10.1819 %

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 27

Finding IRR: Using Excel
 Check the textbook on pages 304-306

 Check the following link:

https://www.youtube.com/watch?v=Ug74NbL81CE

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 28

Internal Rate of Return Criterion
 Relationship to the PW Analysis
Accept Reject
 PW Analysis:
• If PW(i) > 0, accept,
where i is the MARR

PW(i)
IRR = i*
 ROR Analysis:
• If IRR > MARR, accept 0
i

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 29

Internal Rate of Return Criterion
 Relationship to the PW Analysis

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 30

Project Selection Rules (IRR Criterion)

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 31

Decision Rule for Simple Investments

 A unique ROR
PW(i) > 0 PW(i) < 0
• IRR = i*

 Decision Rule: i* = IRR

PW(i)
• If IRR > MARR, Accept
• If IRR = MARR, Indifferent 0
i*
• If IRR < MARR, Reject

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 32

Decision Rule for Non-Simple Investments

 If the PW(i) plot looks like this,

then, IRR  i*:

PW (i)
• Find the true IRR by using the i*
procedures in Appendix 7A i
i*
• Or alternatively, abandon the
IRR method and use the PW
method or AE method.

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 33

Decision Rule for Non-Simple Investments

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Decision Rule for Non-Simple Investments
 Example 7.6: Investment Decision Problem
Solution:
$2,300,000

MARR = 15%

$1,000,000 $1,320,000

• Find the rate(s) of return:

$2,300,000 $1,320,000
1+𝑖 1+𝑖 2
ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 35
Decision Rule for Non-Simple Investments
 Example 7.6: Investment Decision Problem
Solution: Calculating i*s

2
1
Let , then
1+𝑖
2

Solving for yields,

10 10
or
11 12

Solving for yields,

or
MARR = 15%

Should the project be accepted or rejected?

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 36
Decision Rule for Non-Simple Investments
 Example 7.6: Investment Decision Problem
Solution:

Use PW(i)
PW (MARR = 15%) = 1890

PW(MARR) > 0 Accept

the project

NPW Plot for a Non-simple Investment with

Multiple Rates of Return
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Incremental Analysis
 Comparing Mutually Exclusive Alternatives
 Issue: Can we rank the mutually exclusive projects by the
magnitude of their IRRs?
n Project A Project B

0 -$1,000 -$5,000

1 $2,000 $7,000

1000/1000 2000/5000
IRR
100% > 40%

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 38

Incremental Analysis
 Comparing Mutually Exclusive Alternatives
 Issue: Can we rank the mutually exclusive projects by the
magnitude of their IRRs?
n Project A Project B

0 -$1,000 -$5,000

1 $2,000 $7,000

1000/1000 2000/5000
IRR
100% > 40%

PW(10%) $ 818 < $1,364

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 39

 Incremental Analysis
n Project A Project B

0 -$1,000 -$5,000
1 $2,000 $7,000
ROR 100% 40%
PW(10%) $ 818 $1,364
 Project A: needs $1,000 from investment pool. Remaining $4,000 will
continue to earn 10% interest. One year later, $2,000 from the project
investment and $4,400 from investment pool. At the end of one year for
$6,400 (28% return on $5,000). The equivalent PW of this will be:
PW(10%)= -$5,000 + $6,400(P/F, 10%, 1) = $818
 Project B: needs $5,000 from investment pool, will generate $7,000 after
one year. The equivalent PW of this will be:
PW(10%)= -$5,000 + $7,000(P/F, 10%, 1) = $1,364
ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 40
 Incremental Analysis
Incremental
n Project A Project B
Investment (B – A)
0 -$1,000 -$5,000 -$4,000
1 $2,000 $7,000 $5,000
ROR 100% 40% 25%
PW(10%) $ 818 $1,364 $546

 Project A: The equivalent PW of this will be:

PW(10%)= -$5,000 + $6,400(P/F, 10%, 1) = $818
 Project B: The equivalent PW of this will be:
PW(10%)= -$5,000 + $7,000(P/F, 10%, 1) = $1,364
 Incremental Investment (B – A): The equivalent PW of this will be:
PW(10%)= -$4,000 + $5,000(P/F, 10%, 1) = $546
ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 41
Incremental Analysis

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Incremental Analysis Procedures
 Step 1: Compute the cash flow for the difference between
the projects (A,B) by subtracting the cash flow of the lower
investment cost project (A) from that of the higher
investment cost project (B)

 Step 2: Compute the IRR on this incremental investment

IRRB-A
 Step 3: Accept the investment B if and only if IRRB-A > MARR

Note: Make sure that both IRRA and IRRB are greater than MARR

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 43

 Incremental Analysis
 Example 7.7:
Khaled, a KFUPM student, wants to start a small-scale painting business
during his off-school hours. To economize the start-up business, he decides to
purchase some used painting equipment. He has two mutually exclusive
options. Do most of the painting by himself by limiting his business to only
residential painting jobs (B1) or purchase more painting equipment and hire
some helpers to do both residential and commercial painting jobs (B2). He
expects option B2 will have a higher equipment cost, but provide higher
revenues as well (B2). In either case, he n B1 B2
expects to fold the business in three
0 -$3,000 -$12,000
years when he graduates from college. 1 1,350 4,200
The cash flows for the two mutually 2 1,800 6,225
exclusive alternatives are given above 3 1,500 6,330
as follows:
IRR 25% 17.43%
ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 44
 Incremental Analysis
 Example 7.7: n B1 B2
0 -$3,000 -$12,000
With the knowledge that both alternatives 1 1,350 4,200
are revenue projects, which project would 2 1,800 6,225
3 1,500 6,330
Khaled select at MARR = 10%?
IRR 25% 17.43%

Note that both projects are profitable at 10%

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 45

 Incremental Analysis
 Example 7.7: n B1 B2 B2 - B1
Solution: 0 -$3,000 -$12,000 -$9,000
a) Find The IRR on the increment and which 1 1,350 4,200 2,850
alternative is preferable. To choose the best 2 1,800 6,225 4,425
project, we compute the incremental cash 3 1,500 6,330 4,830
flow for B2 - B1
IRR 25% 17.43% 15 %
a) We compute the IRR on this increment of investment by solving
PW( i%)B2-B1 =-$9000+$2850 (P/F,i,1)+$4425(P/F,i,2)+$4830(P/F,i,3) = 0
PW(10%)B2-B1=-$9000+$2850(P/F,10%,1)+$4425(P/F,10%,2)+$4830 (P/F, 10%, 3)
= $876.53
PW(20%)B2-B1= -$9000+$2850(P/F,20%,1)+$4425(P/F,20%,2)+$4830(P/F,20%,3)
= -$757
IRRB2-B1 = i*B2-B1 = 10 + 10 (876 / 876 + 757) 15.364% 15% Since
IRRB2-B1 = 15% > 10%, and also IRRB2 > 10%, select B2
ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 46
Incremental Analysis
 Example 7.7: n B1 B2
0 -$3,000 -$12,000
1 1,350 4,200
2 1,800 6,225
3 1,500 6,330
IRR 25% 17.43%

PW(10%)B1= -$3000+$1350(P/F,10%,1)+$1800(P/F,10%,2)+$1500(P/F,10%,3)
= $842

PW(10%)B2=-$12,000+$4200(P/F,10%,1)+$6225(P/F,10%,2)+$6330(P/F,10%,3)
= $1718.5

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 47

Incremental Analysis
 Example 7.7:

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 48

Incremental Analysis
 Example 7.7:

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IRR on Incremental Investment (Equal Initial Flows)

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 50

IRR on Incremental Investment (Equal Initial Flows)

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 51

IRR on Incremental Investment (Equal Initial Flows)

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 IRR on Incremental Investment (Three Alternatives)
 When you have more than two mutually exclusive alternatives, they
can be compared in pairs by successive examination
 Example: n D1 D2 D3
Step 1: 0 -$2,000 -$1,000 -$3,000
Examine the IRR for each project to 1 1,500 800 1,500
eliminate any project that fails to meet 2 1,000 500 2,000
MARR (15%) 3 800 500 1,000
Step 2: IRR 34.37% 40.76% 24.81%
(Arrange the remaining projects based on their initial investment)
Compare lowest investment cost D2 and the second lowest investment cost D1 in
pairs. Compute the incremental analysis IRRD1-D2. If IRRD1-D2>MARR select D1
otherwise choose D2
Step 3:
Compare the project that passed step 2 with the highest investment cost D3.
Compute the incremental analysis IRRD3-D1 and chose D3 if IRRD3-D1 > MARR
otherwise choose D1.
ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 53
 IRR on Incremental Investment (Three Alternatives)

Solution: n D1 D2 D1 - D2
0 -$2,000 -$1,000 -$1,000
1 1,500 800 700
2 1,000 500 500
3 800 500 300
Step 2: Compare D1 and D2 in pairs IRR 34.37% 40.76% ?
PW( i ) = -$1,000+$700(P/F, i, 1)+ $500(P/F, i, 2)+ $300(P/F, i, 3) = 0

PW( 25% ) = -$1,000+$700(0.8)+ $500(0.64)+ $300(0.512) = $33.6

PW( 30% ) = -$1,000+$700(0.7692)+ $500(0.5917)+ $300(0.4552) = -$29.15

i*D1-D2 = 25% +(30% - 25%) [33.6 /33.6 + 29.2] = 25 + 5(0.535)
= 25 + 2.675 = 27.67 %
IRRD1-D2=27.67% > 15%, so select D1. D1 becomes the current best.
ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 54
IRR on Incremental Investment (Three Alternatives)

Solution: n D1 D3 D3 – D1
0 -$2,000 -$3,000 -$1,000
1 1,500 1,500 0
2 1,000 2,000 1,000
3 800 1,000 200

Step 3: Compare D1 and D3 in pairs IRR 34.37% 24.81% ?

PW( i ) = -$1,000+$0(P/F, i, 1)+ $1,000(P/F, i, 2)+ $200(P/F, i, 3) = 0

PW( 6% ) = -$1,000+$0(0.9434)+ $500(0.89)+ $300(0.8396) = $57.92
PW( 10% ) = -$1,000+$0(0.9091)+ $500(0.8264)+ $300(0.7513) = $-23.34
i*D3-D1 = 6% +(10% - 6%) [57.92 /57.92 + 23.34] = 6 + 4(0.7127)
= 6 + 2.851 = 8.85 %
IRRD3-D1= 8.8% < 15%, so select D1 again. We conclude that D1 is the
best Alternative
ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 55
IRR on Incremental Investment (Cost-Only Projects)

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 56

IRR on Incremental Investment (Cost-Only Projects)

Although we cannot compute the

IRR for each option without
knowing the revenue figures,
we can still calculate the IRR on
incremental investment

IRRFMS-CMS = 12.43% < 15%,

Select the CMS option

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 57

IRR on Incremental Investment (Unequal service lives)

 Example:

x Although

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 58

IRR on Incremental Investment (Unequal service lives)

Solution

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 59

Reading Assignment
 Read Chapter 7 from the textbook

ISE 307 - Term 192 Dr. Yasser Almoghathawi, KFUPM 60