What is the key reason why a positive NPV project should be accepted?
A)The project is expected to increase shareholder value.
B)The present value of the expected cash flows equals the project's cost.
C)The project will produce positive cash flows in the future.
D)The project's payback will be positive during its life.
E)The project's PI will be less than 1,which indicates acceptance.

Question

Quizplus · Accepted Answer

The key reason why a positive NPV project should be accepted is that it is expected to increase shareholder value. NPV measures the present value of expected cash flows compared to initial investment, and a positive NPV indicates that the project will generate more cash inflows than outflows. This creates value for shareholders and justifies the investment decision. Therefore, choice A is the best answer. Choice B is incorrect because a positive NPV means that the present value of cash inflows exceeds the project's cost. Choice C is partly correct, but does not explain why a positive NPV project should be accepted. Choice D is incorrect because payback period does not consider the time value of money or the profitability of the project. Choice E is also incorrect as PI less than 1 indicates a negative NPV project.

What Is the Key Reason Why a Positive NPV Project