The net present value rule provides appropriate guidance for financial decision makers when costs are incurred immediately but _____.
A) future cash flows are not known with certainty
B) marginal costs are equal to marginal revenue
C) result in a stream of benefits over several future time periods
D) marginal costs are greater than marginal revenue

Question

Quizplus · Accepted Answer

The net present value rule states that a financially prudent decision is one that has a positive net present value (NPV). NPV is calculated by subtracting the sum of present values of all costs from the sum of present values of all expected cash inflows. Therefore, the NPV rule is particularly well-suited for a decision where costs are incurred immediately but result in a stream of benefits over several future time periods. Option A is incorrect because the NPV rule assumes that future cash flows are known with certainty. Option B and D are incorrect as they do not relate to the suitability of the NPV rule.

The Net Present Value Rule Provides Appropriate Guidance for Financial