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

Question

Quizplus · Accepted Answer

Net present value (NPV) is the preferred method for comparing projects of different sizes, as it takes into account the time value of money and provides the actual dollar value of the project's profitability. In contrast, internal rate of return (IRR) only compares the rate of return and may give misleading results for projects with significantly different sizes or cash flow patterns.

Net Present Value