The Net Present Value Method Is a Better Method of Evaluation

question 81

Multiple Choice

The net present value method is a better method of evaluation than the internal rate of return method because

• A) the NPV method discounts cash flows at the internal rate of return.
• B) the NPV method is a more liberal method of analysis.
• C) the NPV method discounts cash flows at the firm's more conservative cost of capital.
• D) none of the other answers are correct

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Definitions:

Expected Income

The amount of income an individual anticipates or forecasts to receive over a certain period.

Probability

A numeric evaluation representing the probability of an event taking place, where 0 signifies no chance and 1 signifies certainty.

Expected Income

The weighted average of all possible income outcomes, where the weights are the probabilities of each outcome occurring.

Probability

A measure of the likelihood of a particular event or outcome, expressed as a number between 0 and 1, where 0 indicates impossibility and 1 indicates certainty.