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)net present value
C)payback
D)internal rate of return
E)accounting rate of return

Question

Quizplus · Accepted Answer

Net present value (NPV) is the most appropriate method of analysis for comparing two projects. It takes into account the time value of money and measures the present value of future cash flows. A positive NPV indicates that the project is expected to add value to the company, while a negative NPV suggests that the project should be rejected. Profitability index, payback, internal rate of return, and accounting rate of return are also useful methods of analysis, but they may not provide a complete picture of the project's economic viability. Therefore, NPV is the best choice for this scenario.