The fact that a proposed project is analyzed based on the project's incremental cash flows is the assumption behind which one of the following principles

Question

Griffin Salazar

Business

8 June, 15:11

The fact that a proposed project is analyzed based on the project's incremental cash flows is the assumption behind which one of the following principles

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Answers (1)

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Aimee Garner · Answer 1

the stand alone principle

Explanation:

The stand alone principle states that a project should be accepted or rejected based on how its expected profits compare to similar projects with similar risks.

If we follow the stand alone principle, we must individually determine a project's cash flow. If the NPV is ≥ 0, we have to compare the results, especially the rate of return and sometimes the payback period depending on the project's risk, to other similar projects. The project that has the highest RoR, or sometimes the shortest payback period if the RoRs are similar, should be accepted.