The analysis technique that uses a discount rate determined from the company's cost of capital to establish the present value of a project is commonly called:
A)return on investment (ROI)
B)break-even analysis (BEA)
C)net present value (NPV)
D)future value (FV)

Question

Quizplus · Accepted Answer

Net present value (NPV) uses a discount rate based on the company's cost of capital to determine the present value of future cash flows from a project. This analysis allows for the comparison of the present value of the expected cash flows to the initial investment, providing a measure of the project's profitability. ROI is a measure of the return on an investment relative to its cost and does not incorporate the time value of money. Break-even analysis (BEA) determines the level of sales required to cover all costs associated with a project but does not incorporate the time value of money. Future value (FV) determines the value of an asset at some point in the future, using interest compounded over time.

The Analysis Technique That Uses a Discount Rate Determined from the Company's