The decision rule for net present value is to:
A) accept all projects with cash inflows exceeding the initial cost.
B) reject all projects with rates of return exceeding the opportunity cost of capital.
C) accept all projects with positive net present values.
D) reject all projects lasting longer than 10 years.

Question

Quizplus · Accepted Answer

The net present value (NPV) decision rule is to accept all projects with positive NPV. NPV is calculated by subtracting the present value of expected cash outflows from the present value of expected cash inflows. A positive NPV indicates that the project is expected to generate more cash inflows than outflows and is therefore profitable. Accepting projects with positive NPV maximizes the value of the firm. Therefore, option C is the best choice.

The Decision Rule for Net Present Value Is To