Discussion
Put the steps of an incremental rate of return analysis in order.
1. Test the increment to the next alternative against the required rate 2. Order the alternatives by increasing first cost 3. Adopt the surviving alternative as the choice 4. Make the cheapest acceptable alternative the defender
Answer: A
Correct answer: 2, 4, 1, 3
Order by first cost, take the cheapest acceptable alternative as the defender, then test each increment upward against the required rate, replacing the defender whenever an increment passes. Whatever is left standing at the end is the choice. Testing increments before the ordering is established gives increments that mean nothing.
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