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)identify 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 identify the relevant cash inflows and cash outflows for each project. Without identifying the relevant cash flows, it is not possible to estimate the difference in cash flows between two projects for each year or calculate the present value of the differential cash flows. Summing the individual present values of each investment comes after identifying the relevant cash flows.

The First Step in Using the Differential Approach to Investment