Discussion
Match the situation with the correct response.
1. Two sign changes in the cash flow 2. Mutually exclusive alternatives of different scale 3. A single conventional investment
P. Compare the internal rate with the required rate Q. Use present worth or a modified rate R. Analyse the increments in order of first cost
Answer: D
Correct answer: 1-Q, 2-R, 3-P
Three situations, three correct responses. Two sign changes threaten multiple roots, so present worth or a modified rate is the safe course. Mutually exclusive alternatives of different scale require incremental analysis in order of first cost. And a single conventional investment can simply have its internal rate compared with the required rate, since the root is unique.
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