Net present value:
A) is the best method of analyzing mutually exclusive projects.
B) is less useful than the internal rate of return when comparing different-sized projects.
C) is the easiest method of evaluation for nonfinancial managers.
D) cannot be applied when comparing mutually exclusive projects.
E) is very similar in its methodology to the average accounting return.

Question

Net present value: 
A) is the best method of analyzing mutually exclusive projects. 
B) is less useful than the internal rate of return when comparing different-sized projects.
C) is the easiest method of evaluation for nonfinancial managers. 
D) cannot be applied when comparing mutually exclusive projects. 
E) is very similar in its methodology to the average accounting return.

Quizplus · Accepted Answer

Net present value (NPV) is a method of analyzing the profitability of an investment by comparing the present value of cash inflows to the present value of cash outflows. It is considered the best method of analyzing mutually exclusive projects because it takes into account the time value of money and provides a dollar amount for the expected profitability of the investment. The other options are incorrect because NPV is more useful than internal rate of return when comparing different-sized projects; it may not be the easiest method for nonfinancial managers; it can be applied when comparing mutually exclusive projects; and it differs from the average accounting return method of evaluation.

Net Present Value