IRR on Incremental Investment
If you are making the decision using incremental comparisons, you can also use the Internal Rate of Return (IRR) as the basis for comparison. The incremental investment to carry out the candidate is considered desirable if the IRR of the differential cash-flow stream is greater than the MARR.
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If the incremental cash-flow stream doesn't pass the tests outlined for IRR in the Chapter 8, don't use this process. Use a different basis of comparison instead, such as present worth. |
The step-by-step process is as follows:
1. | List the alternatives in order of increasing initial investment. |
2. | Select the alternative with the smallest initial investment as the current best. (This will usually be the do nothing alternative.) ... |
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