Answer (B) is correct . The net present value (NPV) method computes the discounted present value of future cash inflows to determine whether they are greater than the initial cash outflow. The discount rate (cost of capital or hurdle rate) must be known to discount the future cash inflows. If the NPV is positive (present value of future cash inflows exceeds initial cash outflow), the project should be accepted. If the NPV is negative, the project should be rejected.
Answer (A) is incorrect because The accounting rate of return uses net income (not cash flows) to determine a rate of profitability.
Answer (C) is incorrect because The internal rate of return is the rate at which NPV is zero. The minimum desired rate of return is not used.
Answer (D) is incorrect because The payback method measures the time required to complete the return of the original investment. It gives no consideration to the time value of money or to returns after the payback period.
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