The primary idea behind the net present value rule is that an investment:
A) Is worthwhile if it creates value for the owners.
B) Must have total cash ﬂows that equal zero.
C) Should be accepted if it enhances management's position.
D) Should break-even from an accounting point of view.
E) Should earn a rate of return that is less than the discount rate.

Question

Quizplus · Accepted Answer

The net present value rule states that an investment is worthwhile if it creates value for the owners. This means that the present value of the expected cash inflows from the investment should be greater than the present value of the expected cash outflows. The focus is on creating value for the owners, not just breaking even or enhancing management's position. The discount rate used in the calculation should be based on the opportunity cost of capital, not on the desired rate of return.

The Primary Idea Behind the Net Present Value Rule Is