When comparing two mutually exclusive alternatives by the ROR method, if the rat

Question

When comparing two mutually exclusive alternatives by the ROR method, if the rate of return on the alternative with the higher first cost is less than that of the lower first-cost alternative: (a) The rate of return on the increment between the two is greater than the rate of return for the lower first-cost alternative (b) The rate of return on the increment is less than the rate of return for the lower first-cost alternative (c) The higher first-cost alternative may be the better of the two alternatives (d) The lower first-cost alternative should be selected

Explanation / Answer

Option" A " is correct i.e. the rate of return on the increment between the two is greater than the rate of return for the lower first-cost alternative

IN ROR method we shou not decide just only on the basis of RATE OF RETURN i.e. to select the project with higher ROR

BUT we have to consider also incremental analysis in ROR to decide which project we should select

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