Which of the Following Is a Reason That Makes NPV

question 83

Multiple Choice

Which of the following is a reason that makes NPV a better approach to capital budgeting on a purely theoretical basis?

• A)It measures the benefits relative to the amount invested.
• B)It measures the actual value created by an investment.
• C)Financial decision makers are inclined to higher rates of return.
• D)Interest rates are expressed as annual rates of return.

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Definitions:

Future Economic Benefits

The capability to assist in the direct or indirect increase of cash and cash equivalents for an organization.

Economic Entity Assumption

An accounting principle that assumes a company and its owners are separate entities for recording and reporting financial transactions.

Basic Assumption

Fundamental principles underlying the preparation of financial statements, typically including economic entity, going concern, monetary unit, and periodic reporting.

Corporate Form

The structure of a corporation, recognized by law as a single entity separate from its owners, with its own rights, privileges, and liabilities.