The Most Desirable Property of the NPV Criterion Is That

question 25

Multiple Choice

The most desirable property of the NPV criterion is that it evaluates

• A)investments in the same way as the company's subsidiaries
• B)new market innovations that are simple to identify
• C)investments the same way as the company's shareholders
• D)competitive advantages of the firm realistically

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Definitions:

Target AAR

Desired average annual return; a financial goal for the average rate of return over a specific period typically set by investors for their investment portfolio.

Profitability Index (PI)

The profitability index is a ratio that calculates the present value of future cash flows from an investment divided by the investment's initial cost, used to assess the desirability of a project.

Internal Rate Of Return (IRR)

A financial metric used to estimate the profitability of potential investments, calculated as the discount rate that makes the net present value (NPV) of all cash flows equal to zero.

Discounted Payback

This refers to the period of time it takes to recoup an investment in terms of its discounted cash flows, taking the time value of money into account.