If the salvage value is positive the net present value of an investment_______ and this_______ the likelihood that managers will undertake the project.
A)decreases; increases
B)decreases; decreases
C)increases; decreases
D)increases; increases

Question

Quizplus · Accepted Answer

A positive salvage value means that the asset will have some value at the end of its useful life. This value will reduce the overall cost of the investment and increase the net present value (NPV). A higher NPV indicates a better return on investment, and hence, managers are more likely to undertake the project. Therefore, the correct answer is option D, which states that the net present value will increase, and this will increase the likelihood that managers will undertake the project.

If the Salvage Value Is Positive the Net Present Value