Final answer:
To determine the more economical project, calculate the present value of each project based on the present worth (PW) and compare them. To calculate the IRR of each alternative, find the discount rate that makes the present value of cash inflows equal to the initial investment.
Step-by-step explanation:
In order to determine the more economical project based on the present worth (PW), you need to calculate the present value of each project and compare them. The project with the higher present value is more economical.
To calculate the IRR (Internal Rate of Return) of each alternative, you need to find the discount rate that makes the present value of cash inflows equal to the initial investment. Solve for the discount rate using a trial-and-error method or financial software.
The evaluation of project economics involves comparing their Present Worth (PW) to ascertain the most economical option. Calculating the present value of each project allows for a direct comparison, with the project exhibiting a higher present value considered more economical. Additionally, the Internal Rate of Return (IRR) serves as a crucial metric in project assessment. Determining the IRR necessitates identifying the discount rate that equates the present value of cash inflows with the initial investment. This involves a trial-and-error method or, more efficiently, the use of financial software. A higher IRR signifies a more lucrative investment, contributing valuable insights to project selection and resource allocation decisions.