A project would be acceptable if
A) the payback is greater than the discounted equivalent annual annuity.
B) the equivalent annual annuity is greater than or equal to the firm's discount rate.
C) the profitability index is greater than the net present value.
D) the net present value is positive.

Question

Quizplus · Accepted Answer

The net present value (NPV) should be positive for a project to be acceptable. This is because NPV considers the present value of both the initial investment and the cash inflows that will be generated by the project over its lifetime. If the NPV is positive, it means that the project will generate more cash inflows than the initial investment, thus making it profitable for the firm. The other options mentioned (payback period, equivalent annual annuity, and profitability index) are useful methods of evaluating a project's financial feasibility, but they do not take into account the time value of money as thoroughly as NPV does.

A Project Would Be Acceptable If