Which of the following statements regarding NPV analysis is correct?
A) NPV calculations do not depend critically on cash flow projections.
B) NPV calculations are only as good as the information that goes into their calculation.
C) Negative NPV projects should be scrutinized to make sure there is a sound economic basis underlying them.
D) Positive NPV projects that have relatively low levels of fixed costs should be more heavily scrutinized than projects with relatively high levels of fixed costs.
E) NPV calculations will lead to correct decision-making even if the wrong discount rate is used.

Question

Quizplus · Accepted Answer

NPV calculations are highly dependent on the accuracy of the input data, including cash flow projections and the discount rate. The quality of the NPV analysis is directly related to the quality of the information used in its calculation.

Which of the Following Statements Regarding NPV Analysis Is Correct