A $25 investment produces $27.50 at the end of the year with no risk. Which of the following is not true?
A) NPV is positive if the interest rate is less than 10%.
B) NPV is negative if the interest rate is less than 10%.
C) NPV is zero if the interest rate is equal to 10%.

Question

Quizplus · Accepted Answer

Net Present Value (NPV) is calculated as the difference between the present value of cash inflows and the present value of cash outflows over a period of time. In this case, with a $25 investment producing $27.50, the investment has a return of $2.50. If the interest rate is less than 10%, the present value of the $27.50 received at the end of the year would be more than the initial $25 investment, making the NPV positive, not negative. Therefore, statement B is not true.

A $25 Investment Produces $27