In situations where a firm specifies different required rates of return (i.e., discount rates) over the years, it is advantageous to use:
A) The payback method.
B) The book rate of return method.
C) The net present value (NPV) method.
D) The internal rate of return (IRR) method.
E) Sensitivity analysis.

Question

Quizplus · Accepted Answer

The NPV method is advantageous in situations where different required rates of return over the years are specified because it can accommodate varying discount rates over different time periods, accurately reflecting the changing cost of capital or risk profile of the project.

In Situations Where a Firm Specifies Different Required Rates of Return