Question

Assume the high-tech version is an acceptable project if evaluated on an individual basis. How will you decide what to recommend for the proposed new leash?

A. Accept the project if the incremental IRR > required return

B. Reject the project if the incremental IRR < IRR for the high-tech version

C. Accept both projects if both versions have IRR > required return

D. Reject the project if the incremental IRR > required return

Answer 1

A. Accept the project if the incremental IRR > required return

OTHERS ARE INCORRECT BECAUSE -

B IS INCORRECT INCREMENTAL IRR MAY BE LESS THAN IRR BECAUSE OF REQUIRED RATE ADJUSTMENTS

C IS INCORRECT IRR > REQUIRED RATE IS NOT A CRITERIA FOR ACCEPTANCE OF PROJECT

D IS INCORRECT PROJECT IS ACCEPTED IF INCREMENTAL IRR IS MORE THAN REQUIRED RATE