Comparing Alternatives with Rate of Return. Use Incremental Analysis. Topics. In this section, we recall the definition of ROR, discuss decision situations for multiple alternatives, and discuss the appropriate decision methodology for each situation. Rate of Return.
Use Incremental Analysis
In this section, we
Given a set of possible projects,
1. Rank the alternatives in increasing order of investment.
2. Select as the defenderthe alternative with the smallest investment.
3. Let the challenger be the alternative with the next higher investment.
4. Accept or reject the challenger on the basis of the return on the extra investment. The winner becomes the defender.
5. If the highest level of investment has been reached, stop. Otherwise return to step 3.