The _____ method measures the arbitrage profits associated with an investment project,and recommends projects for which arbitrage profits are positive.

Question

Quizplus · Accepted Answer

The net present value (NPV) method measures the present value of all expected cash inflows and outflows associated with an investment project and compares it with the initial investment cost. If the NPV is positive, the project is recommended as it generates arbitrage profits. The other methods, such as accounting rate of return, discounted payback method, and payback period, do not explicitly consider the time value of money and therefore do not capture the arbitrage profit potential of an investment project.

The _____ Method Measures the Arbitrage Profits Associated with an Investment