A key difference between a replacement project analysis and an expansion project analysis is that the net present value (NPV) technique that is used to evaluate capital budgeting projects should only be used to evaluate expansion projects, whereas either the NPV technique or the internal rate of return (IRR) technique can be used to evaluate replacement projects.

Question

Quizplus · Accepted Answer

This statement is incorrect. Both the NPV and IRR techniques can be used to evaluate both replacement and expansion projects. The choice of technique will depend on the specific circumstances of each project.

A Key Difference Between a Replacement Project Analysis and an Expansion