Multiple Choice Questions
1. When conducting a rate of return (ROR) analysis involving multiple mutually exclusive alternatives, the first step is to:
(a) Rank the alternatives according to decreasing initial investment cost
(b) Rank the alternatives according to increasing initial investment cost
(c) Calculate the present worth of each alternative using the MARR
(d) Find the LCM between all of the alternatives
2. In comparing mutually exclusive alternatives by the ROR method, you should:
(a) Find the ROR of each alternative and pick the one with the highest ROR
(b) Select the alternative whose incremental
ROR is the highest
(c) Select the alternative with ROR ≥ MARR that has the lowest initial investment cost (d) Select the alternative with the largest initial investment that has been incrementally justified
3. When comparing independent projects by the ROR method, you should:
(a) Find the ROR of each project and pick the ones with the highest ROR
(b) Select all projects that have an overall ROR ≥ MARR
(c) Select the project with an overall ROR ≥ MARR that involves the lowest initial investment cost
(d) Select the project with the largest initial investment that has been incrementally justified
4. Of the following scenarios, alternative Y requires a higher initial investment than alternative X, and the MARR is 20% per year. The only scenario that requires an incremental investment analysis to s elect an alternative is that:
(a) X has an overall ROR of 22% per year, and Y has an overall ROR of 24% per year
(b) X has an overall ROR of 19% per year, and Y has an overall ROR of 23% per year
(c) X has an overall ROR of 18% per year, and Y has an overall ROR of 19% per year
(d) X has an overall ROR of 28% per year, and Y has an overall ROR of 26% per year
5. Alternatives whose cash flows (excluding the salvage value) are all negative are called:
(a) Revenue alternatives
(b) Nonconventional alternatives
(c) Cost alternatives
(d) Independent alternatives