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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 is calculated by using

  1. a. the required rate of return.
  2. b. accounting income.
  3. c. the IRR.
  4. d. the future value of cash flows.
  5. e. None of these.

To determine

Identify the term which is used in the calculation 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.

The minimum amount of acceptable rate from an investment is known as the required rate of return (RRR). The project is accepted only if the NPV is greater the RRR Therefore, option a is correct...

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