The net present value (NPV) rule can be best stated as:
A) An investment should be accepted if, and only if, the NPV is exactly equal to zero.
B) An investment should be rejected if the NPV is positive and accepted if it is negative.
C) An investment should be accepted if the NPV is positive and rejected if it is negative.
D) An investment with greater cash inﬂows than cash outﬂows, regardless of when the cash ﬂows occur, will always have a positive NPV and therefore should always be accepted.
E) An investment should be accepted if it equals its depreciation value.

Question

Quizplus · Accepted Answer

The NPV rule states that an investment should be accepted if its NPV is positive and rejected if it is negative. This rule takes into account the time value of money, by discounting future cash flows to their present value. An investment with an NPV of zero means that the present value of its cash inflows is equal to the present value of its cash outflows, but it does not provide any profit or return. Therefore, the best choice is C, which correctly states that a positive NPV is the criterion for accepting an investment.

The Net Present Value (NPV) Rule Can Be Best Stated