An estimate of an asset's value to the company, calculated by discounting the future cash flows from the investment at the project's required rate of return and then subtracting the initial amount of the investment, is known as:
A) Unamortized carrying value.
B) Annual net cash flows.
C) Rate of return on investment.
D) Net present value.
E) Payback period.

Question

Quizplus · Accepted Answer

The method described in the question is the calculation of net present value (NPV), which is the difference between the present value of cash inflows and outflows from an investment. It is a widely used method to evaluate the profitability of an investment, as it considers the time value of money and the project's required rate of return. Unamortized carrying value is the initial cost of an asset, while annual net cash flows and payback period are other methods used to evaluate investments. Rate of return on investment is not the same as NPV and is typically calculated as the ratio of net profit to investment. Therefore, the best choice is D, net present value.

An Estimate of an Asset's Value to the Company, Calculated