The correct answer is: A. Net Present Value (NPV).
Net present value (NPV) is a capital budgeting method that calculates the present value of all future cash flows (both positive and negative) from a proposed investment and compares it to the initial investment. A positive NPV indicates that the investment is expected to generate a profit, while a negative NPV indicates that the investment is expected to lose money.
Internal rate of return (IRR) is a capital budgeting method that calculates the rate of return that makes the net present value of an investment equal to zero. A project with an IRR that is greater than the company’s cost of capital is considered to be a good investment.
Payback period is a capital budgeting method that calculates the amount of time it takes for an investment to recover its initial cost. A shorter payback period indicates that an investment is more likely to be profitable.
Accounting rate of return (ARR) is a capital budgeting method that calculates the ratio of average annual net income to average investment. A higher ARR indicates that an investment is more profitable.
In conclusion, NPV is the only method that equates the present value of cash outflows and the present value of expected cash inflows from a project.