Question
cements ons ents tions Which of the following statement(s) is/are false? (Select the correct answer from the options below the statements) (1) ARR (Accounting rate of return) and payback methods offer better approaches to appraising an investment opportunity than NPV (Net present value) (2) NPV (Net present value) offers a better approach to appraising an investment opportunity than ARR (Accounting rate of return) and payback methods (3) NPV (Net present value)does not fully consider an entity's primary objective of maximizing shareholders' wealth (1) and (3) (1) only (1) and (2) (2) and (3)
Answer
4.7
(291 Votes)
Holly
Expert · Tutor for 3 years
Answer
(1) and (3)
Explanation
## Step 1: Understand the question and categorize the statements according to whether they are true or false. ## Step 2: Analyze statement(1) - ARR (Accounting rate of return) and payback methods offer better approaches to appraising an investment opportunity than NPV (Net present value). This is a false statement because NPV considers the time value of money and risk, giving a more prudent measure of project viability. The ARR and payback period do not take into account the time value of money, and they can misrepresent the profitability of a project.## Step 3: Analyze statement(2) - NPV (Net present value) offers a better approach to appraising an investment opportunity than ARR (Accounting rate of return) and payback methods. This statement is true. As mentioned, the NPV method takes into consideration the time value of money and risk, giving a more prudent measure of project viability.## Step 4: Analyze statement(3) - NPV (Net present value) does not fully consider an entity's primary objective of maximizing shareholders' wealth. This statement is false. NPV technique indeed is for the purpose of maximizing shareholders’ wealth, as by choosing projects with positive NPV, an entity would increase in its value and hence, in the shareholders' wealth.