Question

The "decision model that computes the difference between the present value of the investment's net cash inflows, using a desired rate of return, and the cost of the initial investment" is best described by which of the following terms?
A) Accounting rate of return
B) Discount rate
C) Net present value
D) Internal rate of return

Answer 1

Answer:

C) Net present value

Explanation:

In this method, the initial investment is subtracted from the discounted present value cash inflows. If the amount comes in positive than the project is beneficial for the company otherwise not.

And, the internal rate of return is that return in which the Net present value come zero.

The average rate of return shows a ratio between the average net profit and the average investment.

In mathematically,

Net present value = Present value of all yearly cash inflows after applying discount factor - initial investment