In capital budgeting analysis, the use of a cumulative NPV is useful for:

Question

Quizplus · Accepted Answer

The use of a cumulative NPV is useful for determining the time required to achieve a positive NPV. Cumulative NPV is the sum of all positive and negative NPVs over time. By calculating the cumulative NPV, we can determine when the project will become profitable and reach a positive NPV. Therefore, choice B is the best answer. Choice A is incorrect because determining the probability distribution of NPVs requires a different method. Choices C and D are incorrect because cumulative NPV does not provide information on how the required rate of return or cost of capital changes over time.

In Capital Budgeting Analysis, the Use of a Cumulative NPV