Answer (C) is correct . The NPV is broadly defined as the excess of the present value of the estimated net cash inflows over the net cost of the investment. A discount rate has to be stipulated by the person conducting the analysis. A disadvantage is that it does not provide the true rate of return for an investment, only that the rate of return is higher than a stipulated discount rate (which may be the cost of capital).
Answer (A) is incorrect because The ability to perform sensitivity analysis is an advantage of the NPV method.
Answer (B) is incorrect because The NPV method does not compute the true interest rate.
Answer (D) is incorrect because The IRR method, not the NPV method, uses a trial-and-error approach when cash flows are not identical from year to year.
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