Which of the Following Best Explains Why the Net Present

question 87

Multiple Choice

Which of the following best explains why the net present value method of capital budgeting is preferred over the internal rate-of-return method?

• A) the net present value method is expressed as a percentage of initial investment
• B) the net present values of individual projects can be added to determine the effects of accepting a combination of projects
• C) the percentage return computed under the net present value method is very easy to compare
• D) the calculation under the net present value method is easy as it does not use time value of money

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Definitions:

Accounting Profits

The total revenue of a business minus the explicit costs, reported on financial statements according to standard accounting practices.

Economic Profits

The disparity between total income and combined expenses, encompassing both out-of-pocket and hidden costs.

Economic Profits

The margin between an organization's complete earnings and its aggregate expenditures, covering both visible and hidden costs.

Implicit Costs

Implicit costs are the opportunity costs of using resources owned by the business for production instead of lending, selling, or renting them out.