Which of the following is true about the Net Present Value method?
A) The NPV does not utilize time value of money concepts.
B) The NPV assumes that all cash flows are reinvested at the firm's discount rate.
C) The NPV allows projects to be ranked by rate of return.
D) The NPV is a rate of return that is acceptable to the firm.

Question

Quizplus · Accepted Answer

The Net Present Value (NPV) method takes into consideration the time value of money by discounting future cash flows back to their present value. Therefore, option A is incorrect. The NPV does not rank projects by the rate of return, but rather it provides a monetary value that represents the project's profitability. Thus, option C is incorrect. The NPV method considers the firm's discount rate to discount all future cash flows. Therefore, option D is incorrect.

Which of the Following Is True About the Net Present