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

Question

Quizplus · Accepted Answer

NPV measures the difference between the present value of cash inflows and the present value of cash outflows. An investment with a positive NPV is expected to generate more cash inflows than outflows, thus is profitable and should be accepted. On the other hand, an investment with a negative NPV is expected to generate less cash inflows than outflows, thus is not profitable and should be rejected. Therefore, choice C is correct. Choices A, B, D, and E are incorrect because they do not reflect the general rule of accepting investments with positive NPV and rejecting investments with negative NPV.

Which One of the Following Statements Concerning Net Present Value