Which statement concerning the net present value (NPV) of an investment or a financing project is correct? A financing project should be accepted if, and only if, the NPV is exactly equal to zero. Any type of project with greater total cash inflows than total cash outflows, should always be accepted.
Which of the following statement regarding NPV is true?
The correct answer is A) Accept a project if NPV > cost of investment.
What is the basic net present value NPV investment rule?
The net present value rule is the idea that company managers and investors should only invest in projects or engage in transactions that have a positive net present value (NPV). They should avoid investing in projects that have a negative net present value.
Which of the following correctly defines what net present value is?
The net present value is best defined as the difference between an investment’s: market value and its cost. The process of valuing an investment by discounting its future cash flows is called: discounted cash flow valuation.
What is included in net present value NPV )?
Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project.
Which of the following information regarding to present value is correct?
Present value is built on the time value of money today that states a dollar today is worth more than a dollar in future as it can be invested and earn a return. The present value is the current worth of future cash flows discounted at a set rate.
Which of the following is not considered when using the net present value method?
The correct option is (c) past cash outflows.
Past cash outflows wouldn’t be considered by the company when they using the net present value method…
The NPV rule states that a project should be accepted if the NPV is positive and rejected if the NPV is negative. This aligns with the goal of creating wealth for a firm’s shareholders as only projects which create wealth are approved for acceptance.
What assumption underlies net present value analysis?
What assumption underlies net present value analysis? All cash flows generated by an investment project are immediately reinvested at a rate of return equal to the discount rate.
What is net present value in project management?
Net present value (NPV) refers to the difference between the value of cash now and the value of cash at a future date. NPV in project management is used to determine whether the anticipated financial gains of a project will outweigh the present-day investment — meaning the project is a worthwhile undertaking.
What is net present value NPV method explain its advantages?
The obvious advantage of the net present value method is that it takes into account the basic idea that a future dollar is worth less than a dollar today. … The NPV method also tells us whether an investment will create value for the company or the investor, and by how much in terms of dollars.
When the NPV of an investment is positive then the IRR will be?
With NPV, proposals are usually accepted if they have a net positive value, while IRR is often accepted if the resulting IRR has a higher value compared to the existing cut off rate. Projects with a positive net present value also show a higher internal rate of return greater than the base value.
How is net present value calculated?
Net present value is a tool of Capital budgeting to analyze the profitability of a project or investment. It is calculated by taking the difference between the present value of cash inflows and present value of cash outflows over a period of time.
What does the net present value of a loss control investment really represent to the owners of the organization?
As the present value of the future cash flows is “netted” against the cost of the project, the NPV demonstrates the value of the project to the owners of the firm.
Which of the following is likely to be correct for a company which invest in projects with positive NPV?
The correct answer is option B. A company should invest in projects that produce the highest NPV. The net present value (NPV) for a project is figured out by deducting the initial investment from the sum of present values of all prospective cash flows.