A firm should make an investment only if
A)it is profitable in every year.
B)the present value of the profits exceeds the present value of the costs.
C)the present value of the revenues exceeds the present value of the costs.
D)there are no large losses in the early years.

Question

Quizplus · Accepted Answer

The correct choice is C because an investment is considered sound if the present value of the revenues (the money it brings in) exceeds the present value of the costs (the money it takes to make the investment). This means that, over time, the investment will generate more money than it costs, taking into account the time value of money.

A Firm Should Make an Investment Only If