Net present value:
A)cannot be used when deciding between two mutually exclusive projects.
B)is more useful to decision makers than the internal rate of return when comparing different
Sized projects.
C)is easy to explain to non-ﬁnancial managers and thus is the primary method of analysis
Used by the management.
D)is not an as widely used tool as payback and discounted payback
E)is very similar in its methodology to the average accounting return.

Question

Quizplus · Accepted Answer

Net present value (NPV) is more useful than internal rate of return (IRR) when comparing projects of different sizes because it accounts for the time value of money and provides a dollar value for the project's profitability. NPV compares the present value of cash inflows and outflows to determine if the project is profitable. It can be used to decide between mutually exclusive projects by choosing the project with the higher NPV. It is not necessarily the primary method of analysis used by management, and it is not as widely used as payback and discounted payback. Average accounting return is a different financial metric that is calculated differently from NPV.

Net Present Value