Which of the Following Statements Is Correct Regarding NPV Calculations

question 34

Multiple Choice

Which of the following statements is correct regarding NPV calculations?

• A)When comparing projects on the basis of their NPVs, you should always discount pre-tax cash flows at the after-tax opportunity cost of capital or discount after-tax cash flows at
• The pre-tax opportunity cost of capital. Otherwise, you are double-counting the tax
• Effects.
• B)When comparing projects on the basis of their NPVs, you can only use pre-tax cash flows and pre-tax opportunity costs of capital if the tax treatment is absolutely symmetric.
• C)When comparing projects on the basis of their NPVs, you should either discount pre-tax cash flows at the pre-tax opportunity cost of capital or discount after-tax cash flows using
• The after-tax opportunity cost of capital. Both methods will lead you to the correct
• Financial decision.
• D)Both B and C are correct statements.

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Definitions:

Percentage Change

A mathematical calculation that depicts the degree of change over time, often used to compare the difference in quantities or values.

Solvency Ratio

A key metric used to measure a company's ability to meet its long-term debt obligations and financial liabilities.

Operating Success

A measure of the efficiency and profitability of a business's core activities, excluding the effects of financing and investments.

Enterprise

A business or company, especially when considered in terms of its entrepreneurial or innovative characteristics.