Question

A surveying company has the following investment opportunitie

ID	Investment opportunity	Cost	Rate of Return
1	Fix existing equip/	1000	10%
2	Buy electronic dist. meas. equip.	2500	2%
3	Buy new printer	3000	5%
4	Buy equip. for additional crew	3000	7%
5	Buy small computer	800	20%

Suppose the company has $5000 in an interest-bearing account, with an interest rate of 3%. What is the MARR? If the company can borrow money at 5%, how much should be borrowed to realize which additional investment opportunities? Assume a common horizon of 1 year for the analysis, i.e., don’t consider discounting

Answer 1

Part 1

MARR = Minimum Acceptable Rate of Return
MARR is rate which minimum rate at which project accepted. Project with below MARR should not be accepted. It means the Project 2 (Buy electronic dist. meas. equip.) should be rejected.
MARR = rate for interest-bearing account = 3%	3%

Part 2

Now company would prioritize the project which has more return.

Available funds = Prior line's Available funds - Cost of new project

ID	Investment opportunity	Rate of Return	Cost	Available funds
				$        5,000
5	Buy small computer	20%	$        800	$        4,200
1	Fix existing equipment	10%	$    1,000	$        3,200
4	Buy equip. for additional crew	7%	$    3,000	$           200
	Available balance after selecting three projects			$           200

If the company wants to accept the Project ID 3 (Buy new printer).
Cost of Project ID 3 (Buy new printer).			$        3,000
Less: Available balance after selecting three projects			$           200
Amount that company needs to borrow.			$        2,800