A project has a net present value of $1,200 and a project life of 4 years.Which one of these statements must be true?
A)The project's total cash inflows minus its cash outflows equals $1,200.
B)The project is expected to return $1,200 in Time 0 dollars over and above the discount rate.
C)The project would also have a positive net present value if Year 4 was omitted.
D)The project's cash inflows exceed its outflows by $1,200 over the 4 years.
E)The project is expected to return $1,200 in Year 4 dollars over and above the initial investment.

Question

Quizplus · Accepted Answer

The net present value of $1,200 indicates that the project is expected to generate a return greater than the required rate of return. Therefore, option B is true, which means that the project is expected to return $1,200 in Time 0 dollars over and above the discount rate. Option A and D may or may not be true as the project's cash inflows and outflows could be different each year. Option C is incorrect as removing Year 4 would change the net present value of the project. Option E is also incorrect as the net present value is calculated based on the present value of all cash inflows and outflows, not just in Year 4.

A Project Has a Net Present Value of $1,200 and a Project