Question

Based on the incremental rates of return shown and the company’s MARR of 16% per year, the alternative that should be selected is:

a. Alternative A.

b. Alternative B.

c. Alternative C.

d. Alternative DN.

Comparison

A-to-DN

Rate of Return

23.4%

Comparison

B-to-DN

Rate of Return

8.1%

Comparison

C-to-DN

Rate of Return

16.6%

Comparison

A-to-B

Rate of Return

-16.6%

Comparison

A-to-C

Rate of Return

12.0%

Comparison

B-to-C

Rate of Return

83.9%

EXPERT ANSWER

Incremental cash flows are the cash flow of the larger project minus the cash flows of the smaller project. Since A, B, and C are compared