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Chapter 10 Spring 2010

# Chapter 10 Spring 2010 - CHAPTER 10 Rate of Return...

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CHAPTER 10 Rate of Return Method (ROR)

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HW#7 Due Tuesday 3/02/10 Chapter 10 A.2 A.10 B.2 D2 E1
Uses Selecting between alternatives Rate of Return is used to determine the payback – or return on investment (i) a specific alternative / investment will yield

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Important Information Usually given a MARR When selecting between alternatives based on ROR, the investment with the highest ROR is chosen If a MARR (Minimum Attractive Rate of Return) is given, alternatives with ROR < MARR may be eliminated If the DO NOTHING alternative is available, and all alternatives have ROR < MARR than DO NOTHING If the DO NOTHING alternative is NOT available and all of your ROR’s are < MARR, based on ROR analysis (and Rate of Return analysis only) you select the alternative with the highest ROR . (NOTE usually in this instance you are not only limited to selecting based on ROR. If none of the alternatives are attractive based on ROR's the Incremental Rate of Return method is employed to find the appropriate alternative.).
PROCEDURE 1. Set up NPW, NAW, or NFW equation 2. Set this equation equal to zero 3. Pick an interest value from that interest table 4. Calculate the NPW, NAW, or NFW for this interest value 5. Repeat this process until you find values that are on either side of zero, i.e. one positive and one negative (As close as you can to zero, i.e. do not interpolate between 10% and 30%, narrow your search down.) 6. Interpolate to find

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PROCEDURE If you are not getting
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