Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Introduction to Investments in Securities

Financial Accounting

7. Receivables and Investments

Introduction to Investments in Securities

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Which of the following is a disadvantage of using Net Present Value (NPV) as a capital budgeting method?

NPV ignores the time value of money.

NPV requires an estimate of the cost of capital, which can be difficult to determine accurately.

NPV does not consider all cash flows associated with a project.

NPV always gives the same result as the payback period method.

Previous problemNext problem

Verified step by step guidance

Step 1: Understand the concept of Net Present Value (NPV). NPV is a capital budgeting method that evaluates the profitability of an investment by calculating the difference between the present value of cash inflows and the present value of cash outflows over a project's life. It incorporates the time value of money, which is a key advantage.

Step 2: Analyze the options provided in the question. The first option, 'NPV ignores the time value of money,' is incorrect because NPV explicitly accounts for the time value of money by discounting future cash flows to their present value.

Step 3: Evaluate the second option, 'NPV requires an estimate of the cost of capital, which can be difficult to determine accurately.' This is a valid disadvantage because the accuracy of NPV calculations depends heavily on the correct estimation of the cost of capital, which can be challenging due to market fluctuations and subjective assumptions.

Step 4: Consider the third option, 'NPV does not consider all cash flows associated with a project.' This is incorrect because NPV includes all relevant cash flows, both inflows and outflows, associated with the project.

Step 5: Review the fourth option, 'NPV always gives the same result as the payback period method.' This is incorrect because NPV and the payback period method are fundamentally different approaches. NPV considers the time value of money and provides a measure of profitability, while the payback period focuses only on the time required to recover the initial investment without considering the time value of money.