You are evaluating five investment projects. You already calculated the rate of

Question

You are evaluating five investment projects. You already calculated the rate of return for each alternative investment and incremental rate of return between the two alternatives as well. In calculating the incremental rate of return, a lower cost investment project is subtracted from the higher cost investment project. All rate of return figures are rounded to the nearest integers. Investment Alternative Initial Investment ($) Rate of Return (%) Rate of Return on Incremental Investment (%) If all investment alternatives are mutually exclusive and the MARR is 12%. which alternative should be chosen? Select D. Select E. Select B. Do nothing.

Explanation / Answer

The project D is the best performing one as the incremental return over C is highest =42% that means the incremental investment of $15000 over C gives an incremental return of 7% to D.

And the indivdual return of D (20%) is above MARR and also the highest amon the projects.

Therefore, the correct answer is option A..

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