Assume a project has normal cash flows. Given this, you should accept the project Multiple Choice...
Assume a project has normal cash flows. Given this, you should accept the project
Multiple Choice
a) if the total cash inflows exceed the initial cash outflow.
b) if, and only if, the NPV is exactly equal to zero.
c) if the NPV is positive and reject it if the NPV is negative.
d) only if the NPV is equal to the initial cash flow.
e) because it has positive cash flows for every time period after the initial investment
Homework Answers
The correct option is C.
Present value of inflows=cash inflow*Present value of
discounting factor(rate%,time period)
NPV=Present value of inflows-Present value of outflows
Hence if NPV is positive Present value of inflows is greater than Present value of outflows which leads to positive value creation of the firm and hence project must be accepted only in that case.
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Assume a project has normal cash flows. Given this, you should
accept the project
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