Using the Net Present Value Method, the Decision Rule for Projects

question 25

Multiple Choice

Using the Net Present Value method, the decision rule for projects when finance is not a restriction is:

• A)take on all projects with a positive NPV.
• B)select the project with the largest cash inflows.
• C)select the project where the cash inflows are greatest in the early years of the project.
• D)select the project with cash flows equal to the initial investment.

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Definitions:

Capacity Utilization

The percentage of a firm or country's productive capacity that is being used at a given time.

Fixed Assets

Long-term tangible assets that are used in the operations of a business and are not expected to be consumed or converted into cash within a year.

Percentage of Sales Approach

A forecasting method that estimates future financial outcomes based on a percentage relationship between sales growth and other financial accounts.

Financial Planning

The process of setting objectives, assessing assets and resources, estimating future financial needs, and making plans to achieve monetary goals.