If the NPV for a project is positive it must be that
A) the discounted payback period is longer than the useful life of the project.
B) the internal rate of return is lower than the discount used.
C) the project is not acceptable on a risk adjusted basis.
D) this project is preferred to any other mutually exclusive project.
E) accepting the project increases the value of the firm.

Question

Quizplus · Accepted Answer

A positive NPV indicates that the present value of the project's cash inflows exceeds the present value of its cash outflows, which means that accepting the project would increase the value of the firm. Choice A is incorrect because the discounted payback period is not directly related to the NPV. Choice B is incorrect because a lower internal rate of return would result in a lower NPV, not a higher one. Choice C is incorrect because a positive NPV indicates that the project is acceptable on a risk-adjusted basis. Choice D is incorrect because mutual exclusivity requires choosing between projects with the same investment amount, but a positive NPV does not necessarily mean that this project is preferred to any other.

If the NPV for a Project Is Positive It Must