Net present value is a highly valued decision-making tool because:
A) It only includes information which is known with certainty.
B) It is computed using the internal rate of return.
C) It can be applied to either independent or mutually exclusive projects.
D) It reveals the rate of return which investors will earn on average over the lifetime of the project.
E) It is affected by the magnitude rather than the timing of a project's cash flows.

Question

Quizplus · Accepted Answer

Net present value (NPV) is a versatile tool in financial analysis that can be applied to evaluate both independent and mutually exclusive projects, making it highly valuable for decision-making. It considers the timing and magnitude of cash flows, discounting them back to their present value, which allows for a direct comparison of the initial investment against the present value of returns.

Net Present Value Is a Highly Valued Decision-Making Tool Because