Question

The rate of return for alternative X is 18% and for alternative Y is 16%, with Y requiring a larger initial investment. If a company has a minimum attractive rate of return of 16%, the company should _________________.

Answer 1

Explained

Step-by-step explanation:

The rate of return for alternative X is 18% and for alternative Y is 16%, with Y requiring a larger initial investment. If a company has a minimum attractive rate of return of 16%, the company should do an incremental analysis to select the correct alternative.

Incremental analysis is a decision-making technique used in business to determine the true cost difference between alternatives. Also called the relevant cost approach, marginal analysis, or differential analysis, incremental analysis disregards any sunk cost or past cost.