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:
A) the internal rate of return for the cash flows of each project.
B) the net present value of each project using the internal rate of return as the discount rate.
C) the discount rate that equates the discounted payback periods for each project.
D) the discount rate that makes the net present value of each project equal to 1.
E) the internal rate of return for the differences in the cash flows of the two projects.

Question

Quizplus · Accepted Answer

When trying to choose between two mutually exclusive projects, it is important to compare the incremental cash flows of the projects. The incremental IRR is calculated by finding the internal rate of return for the differences in cash flows between the two projects. This helps to determine at what discount rate the two projects would have the same net present value. Therefore, the best choice is option E, which is finding the internal rate of return for the differences in cash flows of the two projects.

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