Several methods are used to make long-term strategic decisions, including:
I. Net present value
II. Internal rate of return
III. Cost-volume-profit
A) II and III only
B) I and II only
C) I and III only
D) III only

Question

Quizplus · Accepted Answer

Net present value (NPV) and internal rate of return (IRR) are both methods used to evaluate the profitability of long-term strategic decisions. NPV compares the present value of cash inflows to the present value of cash outflows and calculates the resulting net value. If the net present value is positive, the decision is profitable. IRR calculates the rate at which the project’s net present value is equal to zero, and if the IRR is greater than the cost of capital, the project is considered profitable. Cost-volume-profit (CVP) analysis, on the other hand, is used to determine the break-even point and the required sales volume to reach a given profit level, which is useful for short-term decision-making rather than long-term strategic decisions. Therefore, the best choice is B, as it includes the two most common and effective methods for evaluating long-term strategic decisions.

Several Methods Are Used to Make Long-Term Strategic Decisions, Including