Use the information below to answer the following question(s).Wet Water Company drills residential and commercial wells.The company is in the process of analyzing the purchase of a new drill.Information on the proposal is provided below:
Note: Other than the initial investment, cash flows are end of period.The working capital is returned at the end of the investment period.
-In situations where the required rate of return is not constant for each year of the project, it is advantageous to use
A)the adjusted rate of return method.
B)the internal rate of return method.
C)the net present value method.
D)sensitivity analysis.
E)the payback method.

Question

Use the information below to answer the following question(s).Wet Water Company drills residential and commercial wells.The company is in the process of analyzing the purchase of a new drill.Information on the proposal is provided below:
  Note: Other than the initial investment, cash flows are end of period.The working capital is returned at the end of the investment period.
-In situations where the required rate of return is not constant for each year of the project, it is advantageous to use
A)the adjusted rate of return method. 
B)the internal rate of return method. 
C)the net present value method. 
D)sensitivity analysis. 
E)the payback method.

Quizplus · Accepted Answer

The net present value method is advantageous in situations where the required rate of return varies each year, as it allows for discounting cash flows at different rates for each period, providing a more accurate assessment of a project's value.

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