Answered: Define each of the following terms: c.…

Define each of the following terms: c. Net present value (NPV) method; internal rate of return (IRR) method;profitability index (PI)

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter8: Specialized Audit Tools: Attributes Sampling, Monetary Unit Sampling, And Data Analytics Tools

Section: Chapter Questions

Problem 39CYBK

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Question

Define each of the following terms: c. Net present value (NPV) method; internal rate of return (IRR) method;
profitability index (PI)

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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