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Basic Question 9 of 29
Choose one of the following to best quantify, in dollar terms, how stockholder wealth will be affected by undertaking a project under consideration.
B. Net present value
C. Payback analysis
D. The profitability index
E. The internal rate of return
A. The average accounting return
B. Net present value
C. Payback analysis
D. The profitability index
E. The internal rate of return
User Contributed Comments 5
| User | Comment |
|---|---|
| DonAnd | Huh? I thought it was D-the profitability index?? |
| poomie83 | PI is only used NPV is determined. The decision to undertake a project is at the NPV level - positive NPV indicates cash inflows which influences share price thereby affecting stockholder wealth |
| thekobe | dollar terms is the key |
| davcer | Only npv is in dollar terms |
| ascruggs92 | PI is the PV of 1 dollar invested in said project. It's useful but required NPV to be calculated, making NPV more useful. |
Your review questions and global ranking system were so helpful.
Lina
Learning Outcome Statements
describe the capital allocation process, calculate net present value (NPV), internal rate of return (IRR), and return on invested capital (ROIC), and contrast their use in capital allocation
CFA® 2025 Level I Curriculum, Volume 2, Module 5.