Your company is choosing among five possible projects (A through E, listed in order of increasing cost), but can afford to do only one of the five. Your colleague has already done the calculations, but wants to double-check the final recommendation with you. Use the calculations below to determine which project should be selected if your company’s minimum acceptable rate of return is: (a) 11.5% per year or (b) 13.5% per year. (Hint: No calculations needed!)
Comparison Incremental Rate of Return
A vs. doing nothing 10%
B vs. doing nothing 13%
C vs. doing nothing 7%
D vs. doing nothing 11%
E vs. doing nothing 12%
A vs. B 19%
C vs. A 19%
D vs. B 29%
D vs. C 33%
E vs. A 21%
E vs. B 15%
E vs. C 33%
E vs. D 24%