Which of the following situations suggests the acceptance of an investment proposal?
A) The present value of the net cash inflows exceeds the initial investment.
B) The IRR is lower than the hurdle rate.
C) The cash inflows are less than the initial investment.
D) The investment will have a residual value.

Question

Quizplus · Accepted Answer

Accepting an investment proposal depends on whether the present value of the net cash inflows exceeds the initial investment. If the present value of the net cash inflows is greater than the initial investment, then the investment will create value for the organization, and it should be accepted. The IRR and residual value are also important considerations, but they are secondary to the present value of the net cash inflows. Cash inflows less than the initial investment would result in a negative net present value, which means the proposal should be rejected. Therefore, the best choice that suggests acceptance of an investment proposal is option A.

Which of the Following Situations Suggests the Acceptance of an Investment