A sophisticated capital budgeting technique that can be computed by subtracting a project's initial investment from the present value of its cash inflows discounted at a rate equal to the firm's cost of capital is called net present value.

Question

Quizplus · Accepted Answer

This statement correctly defines the net present value (NPV) capital budgeting technique. NPV compares the estimated present value of a project's future cash inflows to the cost of the initial investment to determine whether the investment is profitable or not. If the NPV is positive, the project is likely to generate more cash inflows than its costs, and it is often accepted. If the NPV is negative, the project would decrease the shareholder's value and is usually rejected.

A Sophisticated Capital Budgeting Technique That Can Be Computed by Subtracting