Net Present Value Analysis Often Indicates That Investment Proposals in Advanced

question 61

Multiple Choice

Net present value analysis often indicates that investment proposals in advanced technologies should be rejected when in reality the investment is justified. This can occur because:

• A) hurdle rates are too low.
• B) some benefits are difficult to quantify.
• C) the time horizons used are too long.
• D) the cash flows are certain.

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Definitions:

Discounted Cash Flows

A valuation method used to estimate the value of an investment based on its expected future cash flows, adjusted for time value of money.

Initial Cost

Typically refers to the acquisition price of an asset or investment, including all expenses incurred to bring it to its intended use.

Investment

The action of dedicating financial resources in expectation of gaining profits or income.

Discounted Payback Period

The time it takes to recoup an investment considering the time value of money, by discounting future cash flows to present value.