The Net Present Value (NPV) Method and the Internal Rate

question 136

Multiple Choice

The net present value (NPV) method and the internal rate of return (IRR) method are used to analyze proposed capital expenditures. The IRR method, as contrasted with the NPV method:

• A) Is considered inferior because it fails to calculate compounded rates of return.
• B) Incorporates the time value of money, while the NPV method does not.
• C) Almost always gives a different decision that the NPV method as to the acceptability ("go" versus "no go") of a given proposed investment.
• D) Assumes (according to some commentators) that the rate of return on the reinvestment of the cash proceeds is at the indicated rate of return of the project analyzed rather than at the discount rate used.
• E) Is preferred in practice because it can handle multiple desired rates of return, which is impossible to do with the NPV method.

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Definitions:

Skewed Distribution

A type of distribution in which data points are not evenly distributed around the mean, leading to a longer tail on one side of the distribution.

Longitudinal Study

A research design that involves repeated observations of the same variables (such as people) over short or long periods of time, sometimes lasting many years.

Cross-Sectional Study

A research method that examines data from a population at a single point in time to identify patterns and correlations.

Heart Health

Pertains to the overall condition and functionality of the heart, including factors that influence cardiovascular strength, efficiency, and risk of disease.