Which of the Following Statements Regarding NPV Analysis Is Correct

question 301

Multiple Choice

Which of the following statements regarding NPV analysis is correct?

• A) NPV calculations do not depend critically on cash flow projections.
• B) NPV calculations are only as good as the information that goes into their calculation.
• C) Negative NPV projects should be scrutinized to make sure there is a sound economic basis underlying them.
• D) Positive NPV projects that have relatively low levels of fixed costs should be more heavily scrutinized than projects with relatively high levels of fixed costs.
• E) NPV calculations will lead to correct decision-making even if the wrong discount rate is used.

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Definitions:

Discriminate

To make a distinction in favor of or against a person or thing based on the group, class, or category rather than according to actual merit; can also refer to the ability to perceive and distinguish differences.

Communication Process

The series of steps through which information is transmitted and received between senders and receivers.

Technology

The application of scientific knowledge for practical purposes, especially in industry and everyday life.

Transparency

The practice of being open, honest, and straightforward about various aspects of a business, including operations, decisions, and business practices.