Without using formulas, provide a deﬁnition of net present value (NPV).
A) A project analysis tool that measures the acceptability of a project through the difference between a project's initial investment and whether the present value of its cash ﬂow will
Repay the investment.
B) A project analysis tool that measures the acceptability of a project by determining the amount of proﬁt that can be expected based on an investment made.
C) A project analysis tool that measures the acceptability of a project by determining the length of time required for an investment's discounted cash ﬂows to equal its initial cost.
D) A project analysis tool that determines the amount of time required for an investment to generate cash ﬂows to recover its initial cost.
E) A ranking method used to assess projects. PI greater than 1 signify positive NPV projects, while PI less than 1 signify negative NPV projects.

Question

Quizplus · Accepted Answer

Net present value (NPV) is a tool used to measure the acceptability of a project. It compares the initial investment of a project with the present value of its cash flows to determine whether the cash flows can repay the investment. NPV considers the time value of money, and a positive NPV indicates that the project is expected to generate a return higher than the required rate of return.

Without Using Formulas, Provide a Deﬁnition of Net Present Value