Let's solve the problem step by step. --- ## **Step 1: Understand the Problem** We are to eliminate alternatives in the *first step* of incremental rate of return (IRR) analysis if the Minimum Attractive Rate of Return (MARR) is **12.0%**. --- ## **Step 2: Identify the Relevant Data** | | Do-nothing | A | B | C | D | |-----------|------------|-------|-------|-------|-------| | First cost| 0 | 7,000 | 4,000 | 9,000 | 8,500 | | Annual ben| 0 | 1,264 | 812 | 1,759 | 1,413 | | Life | 10 yrs | | | | | | ROR | | 12.5% | 15.5% | 14.5% | 10.5% | --- ## **Step 3: Eliminate Alternatives Below MARR** - **Any alternative with ROR < MARR (12%)** can be eliminated immediately. | Alternative | ROR | MARR | Eliminate? | |-------------|-------|------|------------| | A | 12.5% | 12% | No | | B | 15.5% | 12% | No | | C | 14.5% | 12% | No | | D | 10.5% | 12% | **Yes** | **So, only D can be eliminated immediately** because its ROR (10.5%) is less than MARR (12%). --- ## **Step 4: Answer** ### **Final Answer** > **D only** --- ### **Explanation** - Alternative D has a rate of return (ROR) less than MARR, so it is not acceptable. - All other alternatives (A, B, C) have ROR > 12%, so they stay for the next steps of the analysis. --- **Correct choice:** - [x] D only

## Step-by-Step Solution for Incremental Rate of Return Analysis ### Step 1: Understand the Problem We need to analyze the alternatives based on their rates of return (ROR) compared to the Minimum Attractive Rate of Return (MARR) of **12.0%**. Alternatives with ROR below this threshold can be eliminated immediately. ### Step 2: Identify the Relevant Data | Alternative | First Cost | Annual Benefit | ROR | |-------------|------------|----------------|-------| | A | $7,000 | $1,264 | 12.5% | | B | $4,000 | $812 | 15.5% | | C | $9,000 | $1,759 | 14.5% | | D | $8,500 | $1,413 | 10.5% | ### Step 3: Eliminate Alternatives Below MARR - We will compare each alternative's ROR against the MARR of **12.0%**. | Alternative | ROR | MARR | Eliminate? | |-------------|-------|------|------------| | A | 12.5% | 12% | No | | B | 15.5% | 12% | No | | C | 14.5% | 12% | No | | D | 10.5% | 12% | **Yes** | ### Step 4: Analyze Results - **Alternative D** has a ROR of **10.5%**, which is less than the MARR of **12.0%**. Therefore, it can be eliminated. - Alternatives A, B, and C all have RORs greater than the MARR and are retained for further analysis. ### Final Answer > **D only** ### Explanation - **D** is eliminated because its ROR is below the MARR. Alternatives A, B, and C are acceptable as they meet or exceed the MARR requirement. **Correct choice:** - [x] D only

## Explanation of Why Other Options Are Not Correct ### Alternatives Overview | Alternative | ROR | |-------------|-------| | A | 12.5% | | B | 15.5% | | C | 14.5% | | D | 10.5% | ### Analysis of Each Alternative 1. **Alternative A (ROR = 12.5%)** - **Comparison to MARR:** 12.5% > 12.0% - **Reason for Retention:** This alternative exceeds the MARR, making it a viable option for further analysis. 2. **Alternative B (ROR = 15.5%)** - **Comparison to MARR:** 15.5% > 12.0% - **Reason for Retention:** This alternative significantly exceeds the MARR, indicating a strong potential return. 3. **Alternative C (ROR = 14.5%)** - **Comparison to MARR:** 14.5% > 12.0% - **Reason for Retention:** Similar to A and B, this alternative meets the MARR requirement, showing a good return. 4. **Alternative D (ROR = 10.5%)** - **Comparison to MARR:** 10.5% < 12.0% - **Reason for Elimination:** This alternative does not meet the MARR requirement, indicating it would not be a worthwhile investment. ### Summary - **Alternatives A, B, and C** are retained because their rates of return are greater than the MARR of 12.0%. They provide acceptable returns and warrant further evaluation. - **Alternative D** is the only option eliminated as it does not meet the minimum threshold for acceptable financial performance. ### Conclusion The correct answer is **D only** because it fails to meet the required MARR, while the other alternatives provide acceptable rates of return.