Question 5 (1 point) In regard to the NPV method, which of the statements below

Question

Question 5 (1 point) In regard to the NPV method, which of the statements below is TRUE? 1) In the NPV model, if two projects are being compared, the one with the highest IRR is selected. In the NPV model, most future cash flows are stated in present value or current dollars and the inflow is "netted" against the outflow to see if the net amount is positive or negative 2) In the NPV model, the net present value of an investment is the present value of all benefits (cash inflow) minus the present value of all costs (cash outflow) of the project. 3) 4) In the NPV model, the present cash flows are discounted at the rate r, the cost of capital.

Explanation / Answer

3 is correct.

1 is incorrect because one with highest NPV is selected in NPV model.

2 is incorrect because all, not most, future cash flows are stated in present value terms.

4 is incorrect because future, not present, cash flows are discounted at cost of capital.

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