Project A is opening a bakery at 10 Center Street.Project B is opening a specialty coffee shop at the same address.Both projects have unconventional cash flows,that is,both projects have positive and negative cash flows that occur following the initial investment.When trying to decide which project to accept,given sufficient funding to accept either project,you should rely most heavily on the ________ method of analysis.
A)profitability index
B)internal rate of return
C)payback
D)net present value
E)discounted payback

Question

Quizplus · Accepted Answer

The best method of analysis in this situation is net present value (NPV) as it takes into account the time value of money and provides a clear picture of the overall profitability of each project. By calculating the present value of all expected future cash flows, including both positive and negative cash flows, and subtracting the initial investment, we can determine which project will generate more value for the company. The other methods, such as payback and profitability index, do not take into account the time value of money and may not provide an accurate measure of profitability.

Project a Is Opening a Bakery at 10 Center Street