Comparisons Based on Total Cash-Flow Streams
The preferred approach is to always do the comparisons based on incremental investment. The incremental form of comparison always works. But the incremental approach isn't the only approach. Done carefully, the total investment approach works just as well. The trick is to just remember when it can be used and when it can't. Don't use IRR as the basis with total cash-flow streams. The total investment approach can only be used when the basis for comparison is present worth (PW), future worth (FW), or annual equivalent (AE).
The total investment approach is different from the incremental approach in a computational sense, but you will end up with exactly the same decision. The present worth on total ...
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