Question

A project's is computed as the present value of project related cash inflows and outflows. Select one: O A. internal rate of return B. net present value C. present value index O D. accounting rate of return

Answer 1

Solution. The correct answer is option- B. net present value

Explanation: An organization for capital investment uses tool of capital budgeting to facilitate decision making. For the given question, a project's net present value will be determined by computing the difference between present value of project related cash inflows and outflows, option B holds true. Option A holds false as internal rate of return projects rate where net present value equals zero, option C holds false as present value index is determined by dividing present value of future cash flow by initial investment and option D holds false as accounting rate of return is determined by dividing the average net income by average investment and does not involve time value of money.