Suppose a project requires an initial investment of $1,000 and it will yield $1,050 one year later.The NPV of the project is:
A)equal to $50.
B)less than 0 if the discount rate is less than 5 percent.
C)zero if the discount rate is equal to 5 percent.
D)positive if the discount rate is greater than 5 percent.

Question

Quizplus · Accepted Answer

The NPV (Net Present Value) is calculated as the present value of cash inflows minus the initial investment. If the project yields $1,050 one year later from a $1,000 investment, the NPV is zero when the discount rate is 5% because the $50 gain exactly offsets the time value of money at that rate.

Suppose a Project Requires an Initial Investment of $1,000 and It