While the NPV Approach Offers Many Advantages Over Some Other

question 51

Multiple Choice

While the NPV approach offers many advantages over some other capital budgeting techniques,several cons exist with respect to the approach.Which of the following is (are) cons of the NPV method?

• A) It fails to consider all of a project's relevant cash flows.
• B) It fails to consider the time value of money.
• C) It focuses on net income and not cash flow.
• D) It seems less intuitive to many users than other methods.
• E) all of the above are cons of the NPV method.

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Definitions:

Compound Interest

Interest calculated on the initial principal of a deposit or loan, as well as on the accumulated interest of previous periods, leading to exponential growth of the amount over time.

Economic Resource

Assets, materials, and inputs used to produce goods and services, including labor, capital, land, and entrepreneurship.

Money

A medium of exchange that is widely accepted in transactions for goods and services and repayment of debts.

Uninsurable Risk

A risk that cannot be covered by an insurance policy due to its high probability of occurring or the inability to accurately price it.