Question

Question 3 10 pts Which alternative should be selected using incremental rate of return analysis, if MARR = 10.5%? B C D $3,500 $9,000 $3,000 738 1,793 1467 JO Do-nothing A First costo $9,000 Annual 1,626 benefit Life 10 yrs 12.5% ROR 16.5% 15.0% 0.0% OB, because its ROR is the highest something other than C, because C costs the most initially OC because C has the highest annual benefit OC, because the C-B increment has a ROR of 14.03% and the A-B increment has a ROR of 9.81%

Answer 1

The incremental rate of return is mainly used when there are two or more competing investment opportunities involving different amounts of investment. The analysis is applied to the difference between the costs of the two investments so if we will look into this problem very carefully we have already been provided with MARR that is the minimum acceptable rate of return that is required after the successful completion of all the project, and along with it, we have already been provided with the rate of return i.e ROR for all the listed project. thus there is no need for any calculation that has to be done for calculating the incremental rate of return. and now we can see that ROR is highest for two options B and C but if we will compare the annual benefits from these two investment opportunities based on their initial investment then we will find that even though Option-C has little bit lower return then the Option-B even though it is more profitable then Option-B because of the output value compared to its initial investment.

Answer - C