NPV Is Superior to Average Accounting Return as a Capital

question 68

Multiple Choice

NPV is superior to average accounting return as a capital budgeting technique because:

• A) it employs the accounting definition of income.
• B) it values each cash flow equally based on dollar value.
• C) it employs the actual cost of an investment.
• D) it employs cash flows.

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Definitions:

Monotonic Transformation

A mathematical operation applied to a function that preserves the order of the data.

Utility Function

An equation that calculates the total utility a consumer gains from consuming a certain quantity of goods and services.

Indifference Curves

Graphical representations of all the combinations of goods and services that provide equal satisfaction to a consumer.

Income

The monetary return or earnings received by an individual or entity, often measured on a regular basis, such as monthly or annually.