Answered: When projects have scale differences,…

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Finance

When projects have scale differences, only the Net Present Value method will rank the projects correctly True False

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 3DQ

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

When projects have scale differences, only the Net Present Value method will rank the projects correctly
1. True
2. False

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

Expert Solution

Introduction

The method used to find out the present value of future cash inflows and outflows is called as Net Present Value method. It is a capital budgeting method and is helpful in making investment decisions.

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