Which of the following statements is correct?
A) Regardless of our preferences for cash today versus cash in the future, we should always maximize benefits first. We can then borrow or lend to shift cash flows through time and find our most preferred pattern of cash flows.
B) Regardless of our preferences for cash today versus cash in the future, we should always maximize present value first. We can then borrow or lend to shift cash flows through time and find our most preferred pattern of cash flows.
C) Regardless of our preferences for cash today versus cash in the future, we should always maximize net present value first. We can then borrow or lend to shift cash flows through time and find our most preferred pattern of cash flows.
D) Regardless of our preferences for cash today versus cash in the future, we should always minimize the cost first. We can then borrow or lend to shift cash flows through time and find our most preferred pattern of cash flows.

Question

Quizplus · Accepted Answer

Maximizing net present value (NPV) is the correct approach because it accounts for the time value of money, ensuring that the value of cash flows is appropriately adjusted to their present value. This allows for a more accurate comparison of projects or investments that have cash flows at different times. After maximizing NPV, individuals or businesses can adjust their cash flow timing through borrowing or lending to match their preference for cash today versus in the future.

Which of the Following Statements Is Correct