Which of the Following Best Explains Why the Net Present

question 87

Multiple Choice

Which of the following best explains why the net present value method of capital budgeting is preferred over the internal rate-of-return method?

• A) the net present value method is expressed as a percentage of initial investment
• B) the net present values of individual projects can be added to determine the effects of accepting a combination of projects
• C) the percentage return computed under the net present value method is very easy to compare
• D) the calculation under the net present value method is easy as it does not use time value of money

---

Definitions:

Invested

The act of allocating money or capital to an endeavor with the expectation of obtaining an additional income or profit.

Annuity

A series of identical cash flows.

Interest Rate

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

Invest Today

A strategy or encouragement to allocate resources, such as time or money, currently, with the expectation of future benefits.