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Published in:
2022 | OriginalPaper | Chapter
10. Incremental Analysis
Author : Teddy Steven Cotter
Published in: Engineering Managerial Economic Decision and Risk Analysis
Publisher: Springer International Publishing
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Abstract
To this point it has been assumed that an engineering manager selects from one of multiple economically acceptable investment alternatives. In economic terms, the investment alternatives are assumed to be mutually exclusive. Under net present worth and equivalent uniform annual worth at a stated MARR interest rate, the mutually exclusive project with the highest NPW or EUAW is always preferred. This is not the case for internal rate of investment analysis. Under the IRR criterion, the investment with the highest IRR may not be the preferred alternative. To avoid this problem, we estimate the internal rate of return on the difference in cash flows of pairwise alternatives. The criterion for alternative selection is now maximizing delta-IRR.