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CBAP · Question #516

A business analyst (BA) is assessing tie different solution proposals. What type of financial calculation would the BA use to determine which solution is worth investing in based on its breakeven poin

The correct answer is B. Net present value. Net Present Value (NPV) is the financial technique used to compare solution investments by calculating the present value of future returns, with NPV equal to zero representing the breakeven point.

Strategy Analysis

Question

A business analyst (BA) is assessing tie different solution proposals. What type of financial calculation would the BA use to determine which solution is worth investing in based on its breakeven point?

Options

  • ADiscount rate
  • BNet present value
  • CReturn on investment
  • DInternal rate of return

How the community answered

(32 responses)
  • A
    13% (4)
  • B
    78% (25)
  • C
    3% (1)
  • D
    6% (2)

Why each option

Net Present Value (NPV) is the financial technique used to compare solution investments by calculating the present value of future returns, with NPV equal to zero representing the breakeven point.

ADiscount rate

The discount rate is an input variable used within NPV calculations to adjust future cash flows, not a standalone financial assessment technique.

BNet present valueCorrect

NPV calculates the difference between the present value of future cash inflows and the cost of the investment, accounting for the time value of money. When NPV equals zero, the investment has reached its discounted breakeven point, meaning returns exactly cover costs. This makes NPV the appropriate tool for comparing multiple solution proposals to determine which offers the greatest financial return relative to its cost.

CReturn on investment

Return on investment measures profitability as a ratio of net benefit to cost but does not incorporate time value of money or directly represent a breakeven point in discounted terms.

DInternal rate of return

Internal rate of return identifies the discount rate at which NPV equals zero for a single investment; it is less suitable for directly comparing the value of multiple competing solution proposals.

Concept tested: Net present value for solution investment comparison and breakeven

Source: https://www.iiba.org/career-resources/a-business-analysis-body-of-knowledge/babok/

Topics

#net present value#financial analysis#solution assessment#investment decision

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