Which of the Following Is True About the Net Present

question 78

Multiple Choice

Which of the following is true about the Net Present Value method?

• A) The NPV does not utilize time value of money concepts.
• B) The NPV assumes that all cash flows are reinvested at the firm's discount rate.
• C) The NPV allows projects to be ranked by rate of return.
• D) The NPV is a rate of return that is acceptable to the firm.

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Definitions:

Transaction Costs

Expenses incurred when buying or selling goods and services, including fees, taxes, and other charges.

Residual Dividend Policy

A strategy where dividends are based on earnings minus funds the firm retains to finance the equity portion of its investment and working capital requirements.

Special Dividend

A one-time distribution of earnings to shareholders, oftentimes an indication of excess cash the company wants to return.

Homemade Dividend

A concept where investors create their own dividend policy by selling a portion of their portfolio of equities instead of relying on company-issued dividends.