Question
The three attributes of NPV are that it:
Multiple select question.
discounts the cash flows properly.
uses cash flows.
doesn't rely on a discount rate.
uses all the cash flows of a project.
Multiple select question.
discounts the cash flows properly.
uses cash flows.
doesn't rely on a discount rate.
uses all the cash flows of a project.
Answers
GPT-4o mini
The three attributes of Net Present Value (NPV) are:
1. **Discounts the cash flows properly** - NPV takes into account the time value of money by discounting future cash flows back to their present value.
2. **Uses cash flows** - NPV focuses on actual cash inflows and outflows rather than accounting profits, making it a relevant measure for evaluating investment projects.
3. **Uses all the cash flows of a project** - NPV considers all cash flows generated by the project throughout its life rather than just focusing on specific periods.
The statement "doesn't rely on a discount rate" is incorrect, as NPV relies heavily on an appropriate discount rate to calculate the present value of future cash flows.
Therefore, the correct selections are:
- Discounts the cash flows properly.
- Uses cash flows.
- Uses all the cash flows of a project.
1. **Discounts the cash flows properly** - NPV takes into account the time value of money by discounting future cash flows back to their present value.
2. **Uses cash flows** - NPV focuses on actual cash inflows and outflows rather than accounting profits, making it a relevant measure for evaluating investment projects.
3. **Uses all the cash flows of a project** - NPV considers all cash flows generated by the project throughout its life rather than just focusing on specific periods.
The statement "doesn't rely on a discount rate" is incorrect, as NPV relies heavily on an appropriate discount rate to calculate the present value of future cash flows.
Therefore, the correct selections are:
- Discounts the cash flows properly.
- Uses cash flows.
- Uses all the cash flows of a project.