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Which of the Following Statements Is Correct Regarding NPV Calculations

Question 51

Multiple Choice

Which of the following statements is correct regarding NPV calculations?


A) When comparing projects on the basis of their NPVs, you should always discount pre-tax cash flows at the after-tax opportunity cost of capital or discount after-tax cash flows at
The pre-tax opportunity cost of capital. Otherwise, you are double-counting the tax
Effects.
B) When comparing projects on the basis of their NPVs, you can only use pre-tax cash flows and pre-tax opportunity costs of capital if the tax treatment is absolutely symmetric.
C) When comparing projects on the basis of their NPVs, you should either discount pre-tax cash flows at the pre-tax opportunity cost of capital or discount after-tax cash flows using
The after-tax opportunity cost of capital. Both methods will lead you to the correct
Financial decision.
D) Both B and C are correct statements.

Correct Answer:

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