The net present value method of evaluating capital investments suggests that an investment with discounted net cash inflows which exceed the initial cost of the investment is desirable.

Question

Quizplus · Accepted Answer

The net present value method calculates the present value of all expected net cash inflows, discounted at the required rate of return, and subtracts the initial cost of the investment. If the resulting value is positive, the investment is considered desirable because it generates more cash inflows than the initial investment cost. If the value is negative, the investment should be rejected because it does not generate sufficient returns to cover its initial cost. Therefore, option A is correct.

The Net Present Value Method of Evaluating Capital Investments Suggests