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Discussion

Incremental rate of return analysis examines the rate earned on the

  • A.extra investment of one alternative over another
  • B.total investment of each alternative separately
  • C.difference between the alternatives' lives
  • D.salvage values of the alternatives

Answer: A

The question is whether the additional capital required by the dearer alternative earns the minimum attractive rate, since that increment is what is actually being decided. If it does, the dearer alternative is preferred.

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