Example: ROR Evaluation of Two Alternatives Solution, using procedure: A B B-A First cost, $ -40,000 -60,000 -20,000 Annual cost, $/year -25,000 -19,000 +6000 Salvage value, $ 8,000 10,000 +2000 Life, years 5 5 Order by first cost and find incremental cash flow B-A Write ROR equation (in terms of PW, AW, or FW) on incremental CF 0-20,000+6000(P/A,Ai*,5) + 2000(P/F,Ai*,5) Solve for Ai* and compare to MARR Ai* B-A 17.2% > MARR of 15% ROR on $20,000 extra investment is acceptable: Select B lacturer Manua Mohammed