You Are Trying to Determine Whether to Accept Project a or Project

question 7

Multiple Choice

You are trying to determine whether to accept Project A or Project B.These projects are mutually exclusive.As part of your analysis,you should compute the incremental IRR by determining the:

• A)internal rate of return for the cash flows of each project.
• B)net present value of each project using the internal rate of return as the discount rate.
• C)discount rate that equates the discounted payback periods for each project.
• D)discount rate that makes the net present value of each project equal to 1.0.
• E)internal rate of return for the differences in the cash flows of the two projects.

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Definitions:

Differential Analysis

The process of comparing the costs and benefits of alternative decisions, focusing on the differences between the options.

Fixed Costs

Expenses that do not change in the short term, regardless of the level of production or sales activities.

Differential Analysis

The process of analyzing and comparing alternative business decisions based on the differences in total costs and total revenues.

Commercial Oven

A heavy-duty cooking appliance designed for use in a commercial setting like restaurants or bakeries, built to withstand high-volume, continuous use.