Which of the following is true of the differential revenues and expenses method?
A) It is used to increase the magnitude and complexity of the information that must be considered in making an appropriate investment decision.
B) It is estimated by only using cash flows.
C) It is based on the concept that a dollar to be received right now has more value than does a dollar to be received at some time in the future.
D) It comprises of estimating the changes in revenues and expenses from current operating results that will occur if an alternative is chosen.

Question

Quizplus · Accepted Answer

The differential revenues and expenses method comprises estimating the changes in revenues and expenses from current operating results that will occur if an alternative is chosen. This method helps in ascertaining whether the proposed investment or alternative will generate any incremental profits or not. Thus, option D is the correct choice. Option A is incorrect because the differential method intends to simplify the decision-making process rather than complicating it. Option B is incorrect because the differential method considers all cash inflows and outflows, including non-cash expenses. Option C is incorrect as it refers to the time value of money concept, which is not related to the differential revenues and expenses method.

Which of the Following Is True of the Differential Revenues