Question

A chemical engineer working for a large chemical products company was asked to make a recommendation about which of three mutually exclusive revenue alternatives should be selected for improving the marketability of personal care products used for conditioning hair, cleansing skin, removing wrinkles, etc. The alternatives (X, Y, and Z) were ranked in order of increasing initial investment and then compared by incremental rate of return analysis. The rate of return on each increment of investment was less than the company's MARR of 17% per year. The alternative to select is: Group of answer choices

Answer 1

Answer: a. DN

Explanation:

The Minimum Acceptable Rate of Return (MARR) which is also known as the Hurdle Rate is the rate of return that will be earned by an investment to ensure that it will cover its cost.

This means that below the MARR, the project will bring in less than the costs it incurred. This is therefore not ideal.

The rate of return on each increment was less than the MARR of 17% which means that they are not profitable.

The company should not invest or rather Do Nothing.