The Net Present Value of an Investment Represents the Difference

question 21

Multiple Choice

The net present value of an investment represents the difference between the investment's:

• A)cash inflows and outflows.
• B)cost and its net profit.
• C)cost and its market value.
• D)cash flows and its profits.
• E)assets and liabilities.

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Definitions:

Probability-Weighted

A method that takes into account the likelihood of various outcomes, often used in financial forecasting and risk assessment to estimate future cash flows or earnings.

Time Value

The concept in finance that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.

Initial Value Method

The initial value method is an accounting approach used in investments where the investment is recorded and maintained at its acquisition cost, ignoring market fluctuations.

Acquisition Method

An accounting method used in business combinations, where the purchasing entity records the assets and liabilities of the acquired entity at fair value.