Question

Alternative A has a rate of return of 14% and Alternative B has a rate of return of 17%. If the investment required in B is larger than that required for A, the rate of return on the increment of investment between A and B is

Answer 1

The answer is "larger than 17%".

Step-by-step explanation:

Assume the sum of investment as B is more than A:

In part A:

A B Increment

Purchase(assumed) 100 150 50

Departure Rate 14% 17%

Return 14 25.5 11.5

The rate of return increases
`( (11.5)/(50) * 100)` 23

In part B:

A B Increment

Purchase(assumed) 100 120 20

Departure Rate 14% 17%

Return 14 20.4 6.4

The rate of return increases
`( (6.4)/(20) * 100)` 32