Putting aside money for use as working capital Using money for another

Putting aside money for use as working capital using

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Putting aside money for use as working capital. Using money for another compelling project. Given above alternatives, how do you make sure that you have chosen the best possible option? One way is to consider/calculate the interest rate / money the company would have made by NOT investing in the selected project? This is the opportunity cost. This interest rate can also be called as Minimum Attractive Rate of Return (MARR)! 4 IE 492 Engineering Economics
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MARR AS OPPORTUNITY COST Minimum Attractive Rate of Return (MARR) is also known as hurdle rate. This is the minimum rate a company is ready to accept for any given project. Any desired investment must have Rate of Return > MARR. In other words, we are looking for a positive NPV at MARR. Low Risk vs. High Risk Projects For a low risk project, the MARR can be set low as the expectation and probability of succeeding is high. For high risk project, the MARR should be set high as the expectation and probability of failing is higher than the low risk project. Higher the risk, higher the rate!
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