Which one of the following statements concerning net present value (NPV) is correct?
A) An investment should be accepted if, and only if, the NPV is exactly equal to zero.
B) An investment should be accepted only if the NPV is equal to the initial cash ﬂow.
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) Any project that has positive cash ﬂows for every time period after the initial investment should be accepted.

Question

Quizplus · Accepted Answer

The correct statement is that an investment should be accepted if the NPV is positive and rejected if it is negative. This is because a positive NPV indicates that the project is expected to generate more cash inflows than outflows, resulting in a gain for the investor. Conversely, a negative NPV indicates that the project is expected to cost more than it generates, resulting in a loss for the investor. Therefore, only projects with a positive NPV should be accepted. The other statements are incorrect because they do not take into account the time value of money or the magnitude of the cash flows.

Which One of the Following Statements Concerning Net Present Value