A positive net present value indicates that:

Question

Quizplus · Accepted Answer

A positive net present value (NPV) occurs when the present value of expected cash inflows exceeds the present value of expected cash outflows. This means that the investment is expected to generate more cash than it costs, which indicates that the projected return on the investment is expected to exceed the cost of capital plus the cost of the initial investment. Option A is incorrect because the internal rate of return (IRR) is the discount rate that makes the NPV equal to zero, not less than the discount rate. Option B is incorrect because the cost of capital is typically used as the discount rate, not the present value of the future cash inflows. Option D is incorrect because a positive NPV means that the IRR is greater than the cost of capital, not less than it.

A Positive Net Present Value Indicates That