The Net Present Value Method is a more conservative technique for selecting investment projects than the Internal Rate of Return method because the NPV method

Question

Quizplus · Accepted Answer

The NPV method assumes that cash flows are reinvested at the firm's weighted average cost of capital, which is a more conservative assumption than assuming they are reinvested at the project's internal rate of return. The NPV method also takes into account the time value of money and focuses on the profitability of the project, rather than just liquidity. Therefore, option C is the best choice. Options A and B are incorrect as they do not accurately describe the NPV method.

The Net Present Value Method Is a More Conservative Technique