Which of the Following Is True About the Net Present

question 50

Multiple Choice

Which of the following is true about the net present value (NPV) capital budgeting technique?

• A)The NPV capital budgeting technique ignores the time value of money.
• B)When projects are evaluated using the NPV formula, it shows by how much a firm's future value will decrease if a capital budgeting project is purchased.
• C)The NPV calculation is based on the assumption that the rate at which cash flows can be reinvested is the project's internal rate of return.
• D)The NPV calculation fails to assume a realistic reinvestment rate assumption (the required rate of return), which is implicit in the internal rate of return calculation (IRR).
• E)If the net benefit computed on a present value basis-that is, NPV-is positive, then the asset (project) is considered an acceptable investment.

---

Definitions:

Classification

A method of arranging entities in an organized system of categories.

Inventory Cost

The total cost associated with keeping goods in stock, including storage, insurance, taxes, and opportunity costs.

Equipment

Tangible assets used in the operation or production process of a business, ranging from office supplies to heavy machinery.

Service Provider

An entity or person that provides services to other parties for compensation.