Question

Which of the following best defines incremental earnings?

A) the net present value (NPV) of earnings that a firm is expected to receive as the result of an investment decision
B) the earnings arising from all projects that a company plans to undertake in a fixed time span
C) cash flows arising from a particular investment decision
D) the amount by which a firm's earnings are expected to change as a result of an investment decision

Answer 1

Answer: Option D

Explanation: Incremental earnings are the reference point to any income-producing initiative to be evaluated as they measure the effect on earnings of a contract.

Incremental earnings refer to the sums a company wants to improve its profits as a result for an investment strategy— for instance, purchasing a line of business or product, or beginning a project.

In simple words, Incremental earnings can be best described as the extent for which the profits of a business increases as a consequence of such transactions, such as new items to be sold. Thus, from the above we can conclude that the correct option is D.