Which of the following is an advantage of NPV?
A) It measures the risk exposure.
B) It takes into account the time value of investors' money.
C) It is highly sensitive to the discount rates.
D) It measures how quickly a firm can breakeven.

Question

Quizplus · Accepted Answer

NPV takes into account the time value of money by discounting future cash flows back to their present value. This allows investors to compare the profitability and viability of different investments over time. Option A is incorrect because while NPV considers risk, it does not directly measure it as it is not a risk measurement tool. Option C is incorrect because while discount rates are a crucial input in NPV calculations, NPV itself is not highly sensitive to them. Option D is incorrect because NPV does not measure how quickly a firm can breakeven; rather, it measures the total value of the investment over its lifetime.

Which of the Following Is an Advantage of NPV