Which statement concerning the net present value (NPV)of an investment or a financing project is correct?
A)A financing project should be accepted if,and only if,the NPV is exactly equal to zero.
B)An investment project should be accepted only if the NPV is equal to the initial cash flow.
C)Any type of project should be accepted if the NPV is positive and rejected if it is negative.
D)Any type of project with greater total cash inflows than total cash outflows,should always be accepted.
E)An investment project that has positive cash flows for every time period after the initial investment should be accepted.

Question

Quizplus · Accepted Answer

NPV represents the difference between the present value of cash inflows and the present value of cash outflows. Therefore, any project with a positive NPV will generate more cash inflows than outflows, and any project with a negative NPV will generate more cash outflows than inflows. Thus, a project should be accepted if the NPV is positive and rejected if it is negative. A financing project is accepted when its NPV is positive, and an investment project is accepted when its NPV is greater than zero. The NPV does not have to be equal to zero or equal to the initial cash flow for the project to be accepted. Therefore, options A, B, and D are incorrect. Option E only specifies positive cash flows after the initial investment, but it does not consider the present value of those cash flows.

Which Statement Concerning the Net Present Value (NPV)of an Investment