The first step in using the differential approach to investment analysis is to ________.
A) calculate the present value of the differential cash flows
B) sum the individual present values of each investment
C) estimate the difference in cash flows between two projects for each year
D) estimate the relevant cash inflows and cash outflows for each project

Question

Quizplus · Accepted Answer

The first step in using the differential approach to investment analysis is to estimate the relevant cash inflows and cash outflows for each project. This involves identifying and quantifying the incremental cash flows that will result from choosing one investment over another. Once these cash flows have been estimated, the present value of the differential cash flows can be calculated and compared to determine which investment is the better choice.

The First Step in Using the Differential Approach to Investment