1. The net present value for a project with a relatively long life is more sensi

Question

1. The net present value for a project with a relatively long life is more sensitive to changes in the required rate of return than the net present value for a project with a relatively short life because:

a. The internal rate of return is greater the longer the term of a project

b. Distant cash flows are more uncertain

c. A change in the discount rate has a much greater impact on more distant

2. The accounting rate of return technique should strictly not be used in capital budgeting as it’s is an accounting method.

a. True

b. False

Explanation / Answer

1.

c. A change in the discount rate has a much greater impact on more distant

Higher the period of cash flow Discount applied is more hence the impact will be higher

2. The accounting rate of return technique should strictly not be used in capital budgeting as it’s is an accounting method.

Statement is False

Accounting rate of return is a financial ratio used in capital budgeting

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