Assume a project currently has a negative net present value.Which one of these expectations would indicate that the timing option for that project may have a positive value?

Question

Quizplus · Accepted Answer

A negative net present value indicates that the project is not generating enough cash flow to justify the investment. However, if the contribution margin for the project is expected to improve next year, it suggests that the project may become profitable in the future. This improvement in contribution margin could be due to better cost management or an increase in sales volume, which would create a timing option for the project to become profitable. Therefore, choice E is the best answer. The other choices are either unrelated or suggest negative outcomes for the project, which would not increase the value of the timing option.

Assume a Project Currently Has a Negative Net Present Value