Rate of Return

This is yet another useful method for comparing the financial advantages of alternative systems using the cash flow diagram. We calculate that specific rate of interest for the system that makes the net present value equal to zero. This rate is called the rate of return (ROR) and is denoted by i*. If this rate is higher than the minimum rate that satisfies the investor or the project manager, then the project is acceptable. This minimum rate is called the Minimum Acceptable Rate of Return (MARR). There is no mathematical formula for calculating MARR. This has to be done by trial and error. Fortunately, there are computer programs that make this calculation simple and fast. Most of the spreadsheets on the market, such as Quattro Pro, Excel, etc., have provisions for calculating the rate of return.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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