Question

Q8) Projects A0 and A1 and A3 are subject for evaluation-based om the incremental analysis MARR =15%

A1-A0 = 18%

A2-A0 = 20%

A3-A0 = 25%

A2-A1 = 10%

A3-A1 = 22%

A3-A2 = 23%

Which to select

1. A3
2. A1
3. A2
4. Should know cash flows are simple or not

Answer 1

Given,

MARR = 15%

Assuming A0 to be 'Do nothing' alternative

From the given incremental rate of return between the project, we can deduce the following:

1. From the incremental rate of return of (A1 & A0), (A2 & A0) & (A3, A0), it is observed that all the three projects have a rate of return above the MARR and hence all the projects are economically viable.

2. From the incremental rate of return of (A2 & A1) and (A3 & A1), the Incremental ROR is higher for A3-A1.

3. It is also observed that the incremental rate of return of A3-A2 is 23% (> MARR)

Therefore, the A3 project is the most desirable among the given project.

Ans: A3