When choosing between projects,an alternative to comparing their IRRs is:
A)to compute the incremental IRR,which tells us the discount rate at which it becomes profitable to switch from one project to the other.
B)to compute the incremental payback period,which tells us the number of years during which it becomes profitable to switch from one project to the other.
C)to compute the incremental NPV,which tells us the discount rate at which it becomes profitable to switch from one project to the other.
D)There is no alternative selection criterion to comparing IRRs.

Question

Quizplus · Accepted Answer

Computing the incremental IRR allows us to compare the profitability of two projects and determine at what discount rate it becomes more profitable to switch from one project to the other. This provides a more accurate comparison than solely relying on IRRs, as it takes into account the timing and magnitude of cash flows for both projects. The incremental payback period and incremental NPV are also useful alternatives, but the incremental IRR is often considered the best choice. Option D is incorrect as there are other selection criteria to compare projects, such as NPV and payback period.

When Choosing Between Projects,an Alternative to Comparing Their IRRs Is