The method of subtracting the present value of cash outflows from the present…
2019
The method of subtracting the present value of cash outflows from the present value of cash inflows is known as:
- A.
Payback period
- B.
Net present value
- C.
Average rate of return
- D.
Internal rate of return
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Correct answer: B
Net Present Value (NPV) is a capital budgeting method used to evaluate investment projects. It is calculated by subtracting the present value of cash outflows (costs) from the present value of cash inflows (returns). If the NPV is positive, the project is considered profitable because it adds value to the firm. Formula: NPV=Present Value of Cash Inflows−Present Value of Cash Outflows