Orpheum Productions in Nevada is considering three mutually exclusive alternatives for lighting enhancements to one of its recording studios. Each enhancement will increase revenues by attracting directors who prefer this lighting style. The cash flow details, in thousands of dollars, for these enhancements are shown in the chart below. MARR is 10%/yr.
| End of Year | Light Bar | Sliding Spots | Reflected Beam |
| 0 | -$6,000 | -$14,000 | -$20,000 |
| 1 | $2,000 | $3,500 | $0 |
| 2 | $2,000 | $3,500 | $2,300 |
| 3 | $2,000 | $3,500 | $4,600 |
| 4 | $2,000 | $3,500 | $6,900 |
| 5 | $2,000 | $3,500 | $9,200 |
| 6 | $2,000 | $3,500 | $11,500 |
Perform an internal rate of return analysis to determine which city, if any, should be recommended. Report the steps of your analysis by selecting suitable answers below.
1. We first compare________(Light Bar, Sliding Spots, Reflected Beam) option to_________(Light Bar, Sliding Spots, Reflected Beam, do nothing) alternative. The IRR is__________(8.34%, 14.27%, 18.16%, 24.29%)
2. We first compare________(Light Bar, Sliding Spots, Reflected Beam) to_________(Light Bar, Reflected Beam, do nothing) The incremental IRR is_________(3.47%, 9.72%, 10.26%, 10.35%)
3.We first compare________(Light Bar, Sliding Spots, Reflected Beam) to_________(Light Bar, Sliding Spots, do nothing) The incremental IRR is______(7.24%, 9.35%, 10.27%, 11.02%)
Based on the above IRR analysis, the recommended option is________(Light Bar, Sliding Spots, Reflected Beam, do nothing)
