An Advantage of the Net Present Value Method for Evaluating

question 51

Multiple Choice

An advantage of the net present value method for evaluating investment proposals over the internal rate of return method is that:

• A)only one set of present value calculations using a required discount rate is made.
• B)the actual rate of return on the project is calculated.
• C)projects can be ranked in order of profitability using the net present value amount.
• D)estimates of future cash flows do not have to be made.

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Definitions:

Variable Costs

Expenses that change in proportion to the activity of a business, such as costs for raw materials or production labor.

Fixed Costs

Costs that do not change with the level of production or sales, such as rent or salaries.

Demand Graph

A visual representation of the quantity of goods consumers are willing and able to buy at various prices, usually depicted by a downward-sloping curve.

Farm Product

Goods generated from agriculture, including crops and livestock, intended primarily for consumption and use.