Uptown Developers is considering two projects.Project A consists of building a wholesale book outlet on the firm's downtown lot.Project B consists of building a sit-down restaurant on that same lot.The lot can only accommodate one of the projects.When trying to decide whether to build the book outlet or the restaurant,management should rely most heavily on the analysis results from which one of these methods?
A)Profitability index
B)Internal rate of return
C)Payback
D)Net present value
E)Accounting rate of return

Question

Quizplus · Accepted Answer

Net present value (NPV) takes into account the time value of money and provides a more accurate measure of profitability compared to other methods such as payback and accounting rate of return. Therefore, management should rely most heavily on the analysis results from the NPV to make the decision of choosing between the two projects. The project with the higher NPV should be selected as it will generate higher returns and value for the company.

Uptown Developers Is Considering Two Projects