Which of the following is an advantage of Net Present Value (NPV)?

Net Present Value (NPV) is a method used in capital budgeting that calculates the present value of a project’s expected cash flows, discounted at a particular rate, typically the cost of capital. The key advantage of NPV is that it utilizes the time value of money, which acknowledges that cash flows received in the future are worth less than cash flows received today due to factors such as inflation and opportunity cost.

By discounting future cash flows back to their present value, NPV provides a more accurate picture of a project's profitability and helps investors compare the value of differing investment opportunities on a like-for-like basis. Since it considers the timing of cash flows, it allows decision-makers to evaluate the merit of an investment based on the timing and amount of all expected cash inflows and outflows.

This understanding of the time value of money makes NPV a preferred method when assessing investment opportunities, as it promotes better financial decision-making by recognizing that money today can be invested to earn a return rather than waiting for future cash flows.