What Is the Limitation of Using the Net Present Value

question 48

Multiple Choice

What is the limitation of using the net present value for evaluating capital investment alternatives?

• A)ignores the time value of money
• B)does not consider cash flows
• C)cannot be used to compare projects of different size
• D)All of the above are limitations of the net present value method.

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Definitions:

Net Savings

The amount left after subtracting a person's or organization's total expenses from their total income, often accumulated over time.

Discount Period

The time frame between the beginning of a loan or credit term and the date the full payment is due, during which a discount may be offered for early payment.

Aging Schedule

A report categorizing a company's accounts receivable according to the length of time an invoice has been outstanding, used to determine credit and collection policies.

Uncollectible Accounts Receivable

Money owed to a company that it does not expect to collect due to the debtor's inability to pay.