Business Plan
Background: 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 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.
Instructions: 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? For more information visit https://en.wikipedia.org/wiki/Business_plan
Sometimes ROR can give multiple results. How would you explain these multiple results to management?
How can multiple ROR results be resolved?
