Which of the following are the merits of the NPV method of capital budgeting? A. Considers all cash…
Considering all cash flows, recognising the time value of money and satisfying value additivity are merits of NPV. Discounting gives less weight to more distant receipts,…
Choose your answer
Which of the following are the merits of the NPV method of capital budgeting?
A. Considers all cash flows
B. Considers the time value of money
C. Gives more weightage to future receipts
D. Satisfies the value additivity principle
E. No relation with the wealth maximisation principle
Answer and explanation
Correct answer D
Considering all cash flows, recognising the time value of money and satisfying value additivity are merits of NPV. Discounting gives less weight to more distant receipts, rather than more. A positive NPV represents an addition to owners’ wealth, so NPV is directly related to wealth maximisation.
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Telangana SET (TG SET)