An investment should be accepted if ________.
A) it has positive total cash inflows
B) it has a payback period in less than 10 years
C) the investment's rate of return is lower than the company's current year required rate of return
D) the net present value is positive

Question

Quizplus · Accepted Answer

The best choice is D because the net present value (NPV) method considers the time value of money, which means that it takes into account the present value of all future cash inflows and outflows associated with an investment. If the NPV is positive, it means that the investment is expected to yield a return higher than the required rate of return and should, therefore, be accepted. Choices A and B are not sufficient criteria for investment decision making, and choice C is incorrect because the investment's rate of return should be higher than the company's required rate of return in order to be worthwhile.

An Investment Should Be Accepted If ________