Which One of These Criticisms Applies to Net Present Value

question 61

Multiple Choice

Which one of these criticisms applies to net present value analysis?

• A)Net present value is too near-sighted.
• B)Net present value analysis cannot be integrated with Monte Carlo simulation.
• C)Real options cannot be included in net present value analysis.
• D)Managers may acquire a false sense of security based on a project's net present value.
• E)Net present value analysis cannot be integrated with scenario analysis.

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Definitions:

Earnings per Share

A company's net profit divided by the number of its common shares outstanding, indicating the company's profitability on a per-share basis.

EBIT

Earnings Before Interest and Taxes; a measure of a firm's profit that includes all expenses except interest and income tax expenses.

Sales

The activity of selling goods or services in exchange for money or other compensation.

DFL

Degree of Financial Leverage, a ratio that measures the sensitivity of a company's earnings per share to fluctuations in its operating income.