According to the net present value (NPV) method of evaluation of projects,if there are cash outflows for multiple periods,then:
A) the NPV of the project will definitely be negative.
B) the NPV of the project will definitely be positive.
C) the discount rate will need to be altered.
D) those cash outflows will have to be discounted back to the current period.

Question

Quizplus · Accepted Answer

The NPV method of evaluation involves discounting all future cash inflows and outflows back to their present value using a discount rate. If there are cash outflows for multiple periods, then those cash flows will have to be discounted back to their present value, as well. This is necessary in order to properly calculate the net present value of the project. Therefore, (D) is the correct choice. The other choices are incorrect because they do not take into account the time value of money or the need to discount future cash flows back to their present value.

According to the Net Present Value (NPV) Method of Evaluation