A chemical company is considering two processes for isolating DNA material. The incremental cash flows between the two alternatives, J and S, have an incremental rate of return that is less than 40%, which is the MARR of the company. However, the company CEO prefers the more expensive process S. She believes the company can implement cost controls to reduce the annual cost of the more expensive process. By how much would she have to reduce the annual operating cost of alternative S (in $ per year) for it to have an incremental rate of return of exactly 40%?
|
Year
|
Incremental Cash Flow (S J), $
|
|
0
|
900,000
|
|
1
|
400,000
|
|
2
|
400,000
|
|
3
|
400,000
|