Rank on Rate of Return
In the rank on rate of return approach, the IRR is calculated for each individual proposal. The proposals are then ranked in order of decreasing IRR. All proposals with an IRR greater than the MARR are selected. This is a fairly well-known approach, but it has two important weaknesses. First, ranking on the IRR will be guaranteed only to select the set of proposals that maximize the total present worth if all the proposals are independent and there are no resource limitations (e.g., budget constraints). Second, even when you are comparing mutually exclusive alternatives, the alternative with the highest rate of return on its total cash flow may not be the alternative that will maximize the total present worth at the MARR. ...
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