Net present value
A)considers only cash flows occurring during the first 5 years of a project.
B)is based on projected annual net income for each year of a project's life.
C)calculations consider the risk of each project.
D)ignores the time value of money.
E)assumes all projects are risk-free.

Question

Quizplus · Accepted Answer

Net present value takes into consideration the risk associated with a project, which is why the discount rate used in the calculation is usually adjusted based on the level of risk. Option A is incorrect because net present value calculates cash flows for the entire life of a project, not just the first 5 years. Option B is incorrect because net present value uses cash inflows and outflows instead of net income. Option D is incorrect because net present value takes into account the time value of money. Option E is incorrect because the assumption that all projects are risk-free is unrealistic.

Net Present Value