Final answer:
The NPV method is used by approximately 75 percent of firms according to a survey of CFOs. This method is essential for businesses to compare present costs with future benefits when making capital investments or policy decisions. It also affects the selection of financial capital sources and associated costs.
Step-by-step explanation:
The survey of CFOs indicates that the NPV method is always, or almost always, used for evaluating investment projects by approximately 75 percent of firms.
Present discounted value is a fundamental concept in business, particularly in decisions involving capital investments. This method is crucial for comparing the present costs of an investment to its future benefits, which have been discounted back to their present value. This decision-making process is key to various business activities, such as purchasing machinery, building new facilities, or investing in research and development. It also plays a role in governmental and environmental policy decisions where future benefits must be weighed against present costs.
When selecting sources of financial capital—such as investments from early-stage investors, reinvesting profits, borrowing, or selling stock—firms are choosing not only how to raise funds for projects but also how to account for the costs associated with each option.