Rate of Return Method for Comparing Alternatives

Chapters 7 and 8 introduced the net present worth and the equivalent uniform annual worth methods for comparing alternatives, and this chapter introduces another method for comparing alternatives, the rate of return (ROR) method. This chapter demonstrates developing ROR equations using net present worth and equivalent uniform annual worth methods and explains the process for calculating rates of return using interpolation. The last section explains the process for evaluating alternatives using incremental investment analysis-incremental rate of return (IROR) analysis.