Using the Net Present Value method, the decision rule for projects when finance is not a restriction is:

Question

Quizplus · Accepted Answer

The NPV method considers the time value of money and calculates the present value of all future cash flows of a project, discounted at a required rate of return. The decision rule is to accept all projects with a positive NPV, as they generate more cash inflows than the initial investment and create value for the company. Therefore, Answer A is the best choice. Answer B only considers the cash inflows, but not their timing or the cost of capital. Answer C is not always the best criterion, as projects with higher cash inflows in later years may still have a higher NPV. Answer D is not adequate, as it only covers the recovery of the initial investment, not the profitability of the project.

Using the Net Present Value Method, the Decision Rule for Projects