What is the NPV of a project in a perfectly competitive environment?
A)Positive
B)Negative
C)Zero
D)The answer cannot be determined.

Question

Quizplus · Accepted Answer

In a perfectly competitive environment, the NPV (Net Present Value) of a project is zero because all potential profits are competed away due to the nature of perfect competition, where there are no barriers to entry and firms can enter and exit the market freely. This ensures that any opportunity for positive NPV is quickly seized upon, driving the NPV down to zero.

What Is the NPV of a Project in a Perfectly