CHAPTER SUMMARY
Just as present worth and annual worth methods find the best alternative from among several,
incremental rate of return calculations can be used for the same purpose. In using the ROR technique,
it is necessary to consider the incremental cash flows when selecting between mutually
exclusive alternatives. The incremental investment evaluation is conducted between only two
alternatives at a time, beginning with the lowest initial investment alternative. Once an alternative
has been eliminated, it is not considered further.
Rate of return values have a natural appeal to management, but the ROR analysis is often
more difficult to set up and complete than the PW or AW analysis using an established MARR.
Care must be taken to perform a ROR analysis correctly on the incremental cash flows; otherwise
it may give incorrect results.
If there is no budget limitation when independent projects are evaluated, the ROR value of
each project is compared to the MARR. Any number, or none, of the projects can be accepted