Understanding Net Present Value in Capital Budgeting

Very Easy Capital Budgeting Investment Decision Criteria

In capital budgeting, companies assess potential investment opportunities through various decision criteria to determine which projects to pursue. One of the commonly used methods is the Net Present Value (NPV) method, which compares the calculated present value of cash inflows to the present value of cash outflows. Based on the information about investment decision criteria, which of the following statements is true regarding NPV?

NPV exclusively considers the total cash outflow of a project.

NPV assesses an investment's profitability by discounting future cash flows to present value.

NPV is more reliable than the payback period but does not account for the time value of money.

Hint

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