The Liberty Co.is considering two projects.Project A consists of building a wholesale book outlet on lot #169 of the Englewood Retail Center.Project B consists of building a sit-down restaurant on
Lot #169 of the Englewood Retail Center.When trying to decide whether to build the book outlet or
The restaurant, management should rely most heavily on the analysis results from the _____
Method of analysis.
A)proﬁtability index
B)internal rate of return
C)payback
D)net present value
E)accounting rate of return

Question

Quizplus · Accepted Answer

The best method of analysis to rely on in this situation is the net present value (NPV) method. This method takes into account the time value of money and calculates the present value of future cash flows. By comparing the NPV of each project, management can see which project generates more value for the company. Therefore, D) net present value is the best choice.