Net present value (NPV) is interpreted using the following decision rule: The investor will purchase the property as long as the NPV is:
A) greater than zero
B) equal to zero
C) less than zero
D) equal to the opportunity cost of investment

Question

Quizplus · Accepted Answer

According to the decision rule, an investor will purchase the property if the NPV is greater than zero, because this means that the project will generate a positive return on investment and the investor will be better off than if they invested in other opportunities that only match the required return (opportunity cost). In contrast, if the NPV is equal to zero or less than zero, there is no positive return or the return is lower than the required return, respectively, and the investor should not invest in the property. Therefore, option A is the best choice.

Net Present Value (NPV) Is Interpreted Using the Following Decision