Net present value:
A) cannot be used when deciding between two mutually exclusive projects.
B) is more useful to decision makers than the internal rate of return when comparing different sized projects.
C) is easy to explain to non-financial managers and thus is the primary method of analysis used by the lowest levels of management.
D) is not an as widely used tool as payback and discounted payback.
E) is very similar in its methodology to the average accounting return.

Question

Quizplus · Accepted Answer

Net present value is a more useful tool for comparing different sized projects as it considers the time value of money and provides a dollar value for the expected profitability of a project. The internal rate of return, on the other hand, provides a percentage rate of return and may not give a clear indication of which project is more profitable.

Net Present Value