Which of the Following Is Not an Important Advantage of the Net

question 68

Multiple Choice

Which of the following is not an important advantage of the net present value (NPV) method over the internal rate of return (IRR) method in evaluating capital investment proposals?

• A) NPV facilitates comparisons of mutually exclusive projects requiring different amounts of initial investments.
• B) NPV facilitates comparisons among mutually exclusive projects that have the same useful life but different initial outlays.
• C) NPV can be used to determine an optimum capital budget under conditions of capital rationing, while IRR cannot.
• D) NPV is relatively intuitive (compared, for example, to IRR).
• E) IRR relies on discounted cash-flow analysis, while NPV does not.

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Definitions:

Payoff Matrix

A table that represents the potential outcomes or payoffs in a strategic decision-making situation, often used in game theory to illustrate the consequences of different actions.

Dominant Strategy

A strategy in game theory that is best for a player to follow regardless of what strategies other players choose.

Game Theory

A branch of mathematics and economics that analyzes strategies in competitive situations where the outcome depends on the actions of all participants.

International Cartel

A consortium of independent organizations formed to limit competition and control prices in international markets.