When the Net Present Value (NPV) of a Project Is

question 143

Multiple Choice

When the net present value (NPV) of a project is calculated based on the assumption that the after-tax cash inflows occur at the end of the year when they actually occur uniformly throughout each year, the NPV will:

• A) Not be in error.
• B) Be slightly overstated.
• C) Be unusable for actual decision-making.
• D) Be slightly understated but probably usable.
• E) Produce an error the direction of which is undeterminable.

---

Definitions:

Profit Margin

A financial performance ratio that shows the percentage of profit a company makes for each dollar of revenue.

Return on Assets

A profitability ratio that indicates how efficiently a company is using its assets to generate profit.

Return on Equity

An indicator of a company's financial performance that shows the amount of profit generated per dollar of shareholders' investment.

Profitability Index

A financial metric that measures the relationship between the present value of future cash flows and the initial investment.