Multiple Choice Questions
1. Helical Systems, Inc. uses a minimum attractive rate of return of 8% per year, compounded annually. The company is evaluating two new processes for improving the efficiency of its manufacturing operation. The cash flow estimates associated with each process are shown below. A correct equation to use for an incremental rate of return analysis is:

(a) 0 = €“ 10,000 + 3000(P/A, ˆ†i*, 3) + 1000(P/F, ˆ†i*, 3)
(b) 0 = €“ 40,000(A/P, ˆ†i*, 3) €“ 15,000 + 5000(A/F, ˆ†i*, 3)
(c) 0 = €“ 50,000(A/P, ˆ†i*, 3) €“ 12,000 + 6000(A/F, ˆ†i*, 3)
(d) 0 = €“ 10,000 €“ 3000(P/A, ˆ†i*, 3) + 1000(P/F, ˆ†i*, 3)
2. For the four independent projects shown, the one or ones to select using a MARR of 14% per year are:
Rate of Return,
Project % per Year
A ........... 14
B ........... 12
C ........... 15
D ........... 10
(a) Only C
(b) Only A and C
(c) Only A
(d) Can€™t tell; need to conduct incremental Analysis
Problems 3 through 5 are based on the following information.
Five alternatives are being evaluated by the incremental rate of return method.

3. If the projects are mutually exclusive and the minimum attractive rate of return is 14% per year, the best alternative is:
(a) B
(b) C
(c) D
(d) E
4. If the projects are mutually exclusive and the MARR is 20% per year, the best alternative is:
(a) B
(b) C
(c) D
(d) E
5. If the projects are independent, instead of mutually exclusive, the one or ones to select at an MARR of 18% per year are:
(a) B and C
(b) B, D, and E
(c) D and E
(d) B, C, andE

Process I Process J First cost, Annual cost, S per year Salvage value, $ Life, years -40,000 -15,000 5,000 -50,000 -12,000 6,000 Intal Overall ROR Incremental Rate of Return, % Alternative Investment, S versus DN, % A B C D E 9.6 35,000 15.1 13.4 D 60,000 25.4 75,000 20.2 25.000 27.3 9.4 35.3 25.0 0 38.5 24.4 46.5 27.3 6.8 -40.000