The NPV of an investment made today is $10,000.If postponed for one year,the NPV at that time will increase by $1,000.Which of the following is correct if the opportunity cost of the investment is 12%?
A) Postpone; the NPV increases by a positive amount.
B) Postpone; the NPV will be larger.
C) Invest now; NPV does not grow at a sufficient rate.
D)Invest now; always accept positive NPV projects.

Question

Quizplus · Accepted Answer

The opportunity cost of 12% means the investment should grow by at least 12% to be worthwhile. The NPV increase of $1,000 on $10,000 is only 10%, which is less than the opportunity cost. Therefore, it is better to invest now.

The NPV of an Investment Made Today Is $10,000