Which of the following is a reason that makes NPV a better approach to capital budgeting on a purely theoretical basis?
A) It measures the benefits relative to the relative amount invested.
B) The reinvestment rate assumed by this method is reasonable.
C) Financial decision makers are inclined to higher rates of return.
D) Interest rates are expressed as annual rates of return.

Question

Quizplus · Accepted Answer

The NPV (Net Present Value) method assumes reinvestment at the project's rate of return or the discount rate, which is generally considered a more reasonable assumption compared to the internal rate of return (IRR) method, which assumes reinvestment at the IRR itself. This makes NPV a theoretically superior approach for evaluating the profitability of investments or projects.

Which of the Following Is a Reason That Makes NPV