Problem

In comparing three alternatives by the incremental rate of return method, an analyst is gi...

In comparing three alternatives by the incremental rate of return method, an analyst is given the following information:

 

Alt.1 (least costly)

Alt.2

Alt.3 (most costly)

Rate of Return (%):

14.5

15.1

12.3

∆ROR(2-1) = 11.3; ∆AROR(3-1) = 13.9; ∆ROR(3-2) = 20.2.

(a) If the MARR is 12%, which alternative should be chosen?

(b) If the MARR is 14% which alternative should be chosen?

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Solutions For Problems in Chapter 15