What will be most cost effective? When looking for ways to save money, while getting the best product available, we look at the best outcome of costs vs. benefits. or in the terms of what we are studying in this module, the highest rate of return (ROR). Simply stated, the definition of ROR is the discount rate that makes the net present value of an investment zero. Therefore, the greater the discount rate, the greater the return on the investment.
This discussion will address the following Module Outcomes:
- MO1: Use rate of return techniques to evaluate and determine whether to invest in a project, several projects, or not to invest in a project. (CO1, CO2)
Please answer the following questions in this module’s discussion.
- Is ROR the same as receiving the “biggest bang for your buck?”
- If present worth and annual worth are easier to calculate then the ROR, why is ROR a more popular analysis tool for determining investments?
- If a company does not have the money to invest in all positive discount rate projects as per ROR, will ROR calculations provide a reliable priority of investment projects? Why or why not?
- Sometimes ROR can give multiple results. How would you explain these multiple results to management?
- How can multiple ROR results be resolved?