Home
/
Business
/
Question 11 Which of the following statements is true? Select the correct answer from the options below All positive NPV (net present value) investments enhance shareholders' wealth Money does not necessarily have a time value The cash flow forecast is needed to calculate ARR (accounting rate of return) IRR (Internal rate of return) is when NPV (net present value) is >0

Question

Question 11
Which of the following statements is true?
Select the correct answer from the options below
All positive NPV (net present value) investments enhance shareholders' wealth
Money does not necessarily have a time value
The cash flow forecast is needed to calculate ARR (accounting rate of return)
IRR (Internal rate of return) is when NPV (net present value) is >0

Question 11 Which of the following statements is true? Select the correct answer from the options below All positive NPV (net present value) investments enhance shareholders' wealth Money does not necessarily have a time value The cash flow forecast is needed to calculate ARR (accounting rate of return) IRR (Internal rate of return) is when NPV (net present value) is >0

expert verifiedVerification of experts

Answer

4.1257 Voting
avatar
BethanyVeteran · Tutor for 10 years

Answer

"All positive NPV (Net Present Value) investments enhance shareholders' wealth."

Explain

## Step 1: <br />Consider the first statement: "All positive NPV (Net Present Value) investments enhance shareholders' wealth." This statement is correct. The NPV is a tool used in capital budgeting to assess the value or profit potential of a certain project. When the NPV is positive, it means the return expected from a project exceeds the cost of the project, thus providing wealth to the shareholders. <br /><br />## Step 2: <br />Now examine the second statement: "Money does not necessarily have a time value." This statement is technically false. Money does indeed have time value, meaning that its present-day value is worth more than the same amount in the near future due to its potential earning and inflation capacity. <br /><br />## Step 3:<br />Next, let's consider statement three: "The cash flow forecast is needed to calculate ARR (Accounting Rate of Return)." It is not exactly correct. Fortunately, cash flow is not required for ARR calculations. ARR is determined by dividing the average annual profits by the initial capital cost.<br /><br />### The formula is: \( ARR = \frac{Average Annual Profit}{Initial Capital Tik Cost} \). <br /><br />## Step 4: <br />Finally, consider the specific details,which are that "IRR (Internal Rate of Return) is when NPV (net present value) is \( >0 \)." This statement is incorrect. The IRR is in reality the interest percentage that renders the NPV of the cash flows from a project to be zero.
Click to rate:

Hot Questions

More x