If a firm considering the purchase of an asset determines that the asset's NPV 0, ________ the asset will ________ profits.

Question

If a firm considering the purchase of an asset determines that the asset's NPV > 0, ________ the asset will ________ profits.

Quizplus · Accepted Answer

If the NPV is greater than 0, it means that the present value of the expected future cash flows from the asset exceed its initial cost. Therefore, purchasing the asset will increase profits. Refusing to buy the asset (option A) will not result in any change in profits. Option C is incorrect because purchasing the asset will increase profits, not decrease them. Option D is also incorrect because selling an asset will result in a cash inflow but may not necessarily increase profits, depending on the amount of the sale proceeds and the effect on future cash flows.

If a Firm Considering the Purchase of an Asset Determines