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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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NPV measures

  1. a. the profitability of an investment.
  2. b. the change in wealth.
  3. c. the change in firm value.
  4. d. the difference in present value of cash inflows and outflows.
  5. e. All of these.

To determine

Identify the option which correctly explains the measures of NPV.

Explanation

Net Present Value:

The remaining balance of the present value of a project’s inflows and outflows is known as net present value (NPV). It is a discounting model of capital investment decision. A project with a positive NPV increases the wealth of a firm whereas a project with a negative NPV decreases the wealth of a firm.

a.

NPV measures the profitability of the investment by subtracting the present value of cash inflow from present value of cash outflow. Therefore, option a is relevant...

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