Question

When several alternative investment proposals of the same amount are being considered, the one with the largest net present value is the most desirable. If the alternative proposals involve different amounts of investment, it is useful to prepare a relative ranking of the proposals by using a(n):a. average rate of return b. consumer price index c. present value index d. price-level index

Answer 1

The correct answer is C. Present Value Index.

Step-by-step explanation:

The present value (PV) is the value that today has a certain flow of money that we will receive in the future.

The present value is a formula that allows us to calculate what is the value of today that has an amount of money that we will not receive right now but later, in the future. To calculate the VP we need to know two things: the money flows that we will receive (or that we will pay in the future since the flows can also be negative) and a rate that allows to discount these flows.