Solution by Spreadsheet
Refer to Figure 8–6 as the solution is explained. For information, row 10 shows the ROR values
calculated using the IRR function for filter 1 and filter 2 cash flows and the incremental cash
flow series (filter 2 filter 1).
The cash flow sign tests for each filter indicate no multiple rates. The incremental cash flow
sign test does not indicate the presence of a unique positive root; however, the second rate is an
extremely large and useless value. The PW values of filter 1 and filter 2 cash flows are plotted
on the right side for i values ranging from 0% to 60%. Since the PW curves cross each other at
approximately i * 17%, the rate does exceed the MARR of 15%. The higher-cost fi lter 2
(Purely Heaven) is selected.
The PW curve for the incremental cash flows series (column G) is plotted at the bottom left
of Figure 8–6 . As expected, the curve crosses the PW 0 line at approximately 17%, indicating
the same economic conclusion of filter 2.