Please explain reasoning: Based on the incremental return shown and the company’
ID: 2824304 • Letter: P
Question
Please explain reasoning:
Based on the incremental return shown and the company’s MARR of 16% per year, the alternative that should be selected is _______________.
The project initial costs are such that A < B < C.
Comparison
Rate of Return, %
A to DN
23.4
B to DN
8.1
C to DN
16.6
A to B
-5.1
A to C
12.0
B to C
83.9
Possible Answers:
Alternative A
Cannot be determined.
Do nothing
Alternative B - this answer is incorre
Alternative C
Comparison
Rate of Return, %
A to DN
23.4
B to DN
8.1
C to DN
16.6
A to B
-5.1
A to C
12.0
B to C
83.9
Explanation / Answer
Here, rate of return from incremental investing from Ato C is (A minus C) is 12%, which is lower than the MARR 16%, so project C should be selected over project A.
Hence, correct option is Alternative C.