An investment costing $25 returns $27.50 at the end of one year with no risk.Given this,you know that the NPV:
A)is zero at any given discount rate.
B)is negative if the required return is less than 10 percent.
C)equals 1.0 if the required return is 10 percent.
D)is zero if the required rate of return is 10 percent.
E)must be positive at any given discount rate.

Question

Quizplus · Accepted Answer

The NPV of an investment is the present value of its expected cash flows minus the initial cost. In this case, the initial cost is $25, and the expected cash flow at the end of one year is $27.50. Assuming a discount rate of 10%, the present value of the cash flow is $25, which means the NPV is zero. Therefore, the correct answer is D, as the NPV is zero if the required rate of return is 10%.

An Investment Costing $25 Returns $27