If the net present value of an investment is positive, this represents the:

Question

Quizplus · Accepted Answer

The net present value (NPV) represents the difference between the present value of cash inflows and the present value of cash outflows of an investment, discounted at a certain required rate of return or hurdle rate. If the NPV is positive, it means that the investment generates more cash inflows than outflows, and the value gain of the investment is above the hurdle rate. Therefore, choice D is the best answer. Choice A is incorrect because NPV is not the same as contribution margin, which only considers variable costs and revenues. Choice B is incorrect because NPV does not equal net profit, which is the difference between revenues and all costs, including fixed costs. Choice C is incorrect because NPV does not capture the tax benefits or consequences of an investment, which are usually evaluated separately.

If the Net Present Value of an Investment Is Positive