Which of the following statements about the net present value method is true?
A) Projects with higher net present values are preferred when all other factors are equal.
B) Projects with negative NPV are acceptable, if no positive NPV projects are available.
C) It focuses on operating income.
D) The origination of cash flows is not important in the analysis.
E) Acceptable projects are those with the highest discount rate.

Question

Quizplus · Accepted Answer

The net present value method focuses on calculating the present value of future cash flows and subtracting the initial investment. It takes into account the time value of money and helps in comparing projects with different cash flows and time durations. Therefore, projects with higher net present values are preferred when all other factors are equal. Option B is incorrect as projects with negative NPV should be rejected as they do not generate enough returns to cover the investment. Option C is incorrect as the net present value method focuses on cash flows, not operating income. Option D is incorrect as the timing and amount of cash flows are crucial in determining the net present value. Option E is incorrect as the acceptable projects are those with a positive net present value, not the highest discount rate.

Which of the Following Statements About the Net Present Value