Donnelly Company is considering investing in a sizable piece of equipment and their analysis yielded a positive NPV of $23,500.Which of the following statements is not
True?

Question

Quizplus · Accepted Answer

The positive NPV of $23,500 does not mean that the new equipment will increase net income by the same amount. NPV takes into account the time value of money, which means that the cash flows from the investment are discounted to reflect their present value. Additionally, the positive NPV does not guarantee success, as there may be unforeseen factors that affect the project's profitability. Nevertheless, the other statements are true: Donnelly should buy the machine (B), the new equipment is likely to generate a return greater than Donnelly's cost of capital (C), and the Donnelly Company should recover the cost of the new equipment (D) over time through the increased cash flows generated by the investment.

Donnelly Company Is Considering Investing in a Sizable Piece of Equipment