Asked by Sergio Olivas on Jul 17, 2024
Verified
Which of the following criteria represents the dollar amount of change in the value of the firm as a result of choosing a decision?
A) net present value
B) payback period
C) return on investment
D) internal rate of return
Net Present Value
A financial metric that calculates the difference between the present value of cash inflows and the present value of cash outflows over a period of time.
Dollar Amount
Indicates a specific value of money, usually in U.S. dollars, mentioned in financial transactions, budgets, and pricing.
- Determine and explain the significance of the internal rate of return (IRR) and net present value (NPV) in the context of investment decision-making.
Verified Answer
CJ
Coleman JonesJul 18, 2024
Final Answer :
A
Explanation :
Net present value (NPV) measures the dollar amount of change in the value of the firm as a result of choosing a decision. It takes into account the time value of money and represents the difference between the present value of cash inflows and the present value of cash outflows. Payback period, return on investment, and internal rate of return represent other criteria used in capital budgeting, but do not directly measure the dollar amount of change in the value of the firm.
Learning Objectives
- Determine and explain the significance of the internal rate of return (IRR) and net present value (NPV) in the context of investment decision-making.