Question

1. If the NPV from a project is positive it must be that the internal rate of return is lower than the discount rate used. the project is not acceptable on a risk adjusted basis. this project is preferred to any other mutually exclusive project. accepting the project increases the value of the firm. 5 Question 9 (2 points) 1. Which of the following is not a rationale for using the NPV method in capital budgeting? An NPV of zero signifies that the project's cash flows are just sufficient to repay the invested capital and to provide the required rate of return on that capital. A project whose NPV is positive will increase the value of the firm if that project is accepted. A project is considered acceptable if it has a positive NPV.

Answer 1

ANS: Question No. 01 Option (D) (accepting the project increases the value of the firm)

Net present value (NPV) is the difference between the PV of Cash Inflow & PV of Cash Outflow. If NPV is positive, it means accepting the given project is viable & profitable too. If NPV is negative, it means Cash Outflow of project shall exceeds the Future Cash Inflows, hence that project shall be rejected.

Question No. 09 Option (A) (An NPV od zero signifies that the project's cashflow are just sufficient to repay the invested capital & to provide the required rate of return on that capital)

The Rationale behind the NPV method is to focus on the wealth maximisation of wealth for the business owners or shareholders.NPV seeks to identify the most viable investment opportunities. It is widely used in the capital budgeting to identify the projects that yields high profit.

Positive NPV signifies that project is profitable which rationale as per capital budgeting. But NPV as Zero or negative NPV signifies the loss project & hence they are not rationale as per capital budgeting.