The principle that an investment should be accepted if the difference between the investment's market value and its cost is positive and rejected if the difference is negative is referred to as the:
A) Average accounting return rule.
B) Internal rate of return rule.
C) Proﬁtability index rule.
D) Discounted payback rule.
E) Net present value rule.

Question

Quizplus · Accepted Answer

The principle described in the question is best represented by the net present value (NPV) rule, which states that an investment should be accepted if its NPV is positive and rejected if its NPV is negative. The NPV calculates the present value of expected cash flows from an investment, minus the initial cost of the investment. If the resulting value is positive, the investment is considered profitable, as the present value of expected future cash flows exceeds the initial cost. The NPV is considered the most comprehensive and reliable method for investment analysis, and is widely used by businesses and investors to evaluate potential investments.

The Principle That an Investment Should Be Accepted If the Difference