Question ID: CMA 1278 5.10 (Topic: Capital Budgeting Process)
- This topic has 3 replies, 2 voices, and was last updated 1 year, 4 months ago by Lynn Roden.
The accountant of Ronier, Inc. has prepared an analysis of a proposed capital project using discounted cash flow techniques. One manager has questioned the accuracy of the results because the discount factors employed in the analysis have assumed the cash flows occurred at the end of the year when the cash flows actually occurred uniformly throughout each year. The net present value calculated by the accountant will
A. Be unusable for actual decision making.
B. Be slightly overstated.
C. Be slightly understated but usable.
D. Not be in error
Can you elaborate the Solution of this Question as I am unable to understand why will the NPV calculated would be Lower than the one calculated considering the Cash Flows were incurred uniformly throughout the year?
- You must be logged in to reply to this topic.