For each of the following scenarios, state whether an incremental ROR analysis i

Question

For each of the following scenarios, state whether an incremental ROR analysis is required to select an alternative and state why or why not. Assume that alternative Y requires a larger initial investment than alternative X and that the MARR is 20% per year.

a) X has a rate of return of 22% per year, and Y has a rate of return of 20% per year.

b) X has a rate of return of 19% per year, and Y has a rate of return of 21% per year.

c) X has a rate of return of 16% per year, and Y has a rate of return of 19% per year.

d) X has a rate of return of 25% per year, and Y has a rate of return of 23%.

e) X has a rate of return of 20%, and Y has a rate of return of 22% per year.

Explanation / Answer

Solution:-

1) a) B is better because it will be bound to pay more return on higher amount invested on alernate B relative to alternate A.

b) A is better because higher amount invested in A will give higher return compared to alternate B.

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