Which method for evaluating capital investment proposals reduces the expected future net cash flows originating from the proposals to their present values and computes a net present value?

Question

Quizplus · Accepted Answer

Net present value (NPV) calculates the present value of expected future cash flows from an investment proposal and then subtracts the initial cost of the investment. This method takes into account the time value of money by discounting future cash flows using a specified rate. A positive NPV indicates that the investment is expected to generate returns greater than the required rate of return, and this method is considered the most reliable and comprehensive method of evaluating capital investment proposals. Options B, C, and D are alternative methods but do not provide the same level of accuracy and reliability as NPV.

Which Method for Evaluating Capital Investment Proposals Reduces the Expected