As long as the NPV of a project declines smoothly with increases in the discount rate, the project is acceptable if its:
A)Internal rate of return is positive
B)Net present value does not equal zero
C)Rate of return exceeds the cost of capital
D)Cash inflows exceed the initial cost

Question

Quizplus · Accepted Answer

The smooth decline in NPV with an increase in the discount rate indicates that the project is profitable, and the rate of return exceeds the cost of capital. This means that the project is creating value for the company and is acceptable. A positive IRR and cash inflows exceeding initial cost are good indicators, but not sufficient on their own as acceptance criteria. Net present value not equaling zero can be either positive or negative, so it is not a sure indicator of project acceptance. Therefore, option C is the best choice.

As Long as the NPV of a Project Declines Smoothly