Why is NPV on after-interest cash flows wrong?
AIgnores working capital
BDouble counts time value
COverstates depreciation
DUnderstates tax payable
Answer & Solution
Correct answer: B. Double counts time value
Discounting already charges for the time value of money, so deducting interest from the flows counts it twice.
Keep practising Profitability Index
Browse all Profitability Index questions for CA Inter, or explore more Financial Management topics.
Related questions
Which rule applies to a PI result of 1.092 for an independent project?Perpetual inflow of Rs 12,000 a year at 10 percent against an outlay of Rs 1,00,000 gives Which of these is a technique that ignores the time value of money?A project has NPV zero at 18 percent discount rate. What is its IRR?If IRR exceeds the cost of capital on a conventional project, what is NPV?Which discount rate is often used when discounting project cash flows in NPV?What is a limitation of the NPV approach regarding non-financial matters?Why is NPV said to have the benefit of being additive?