Which of the following best describes the Net Present Value rule?
A)Take any investment opportunity where the net present value (NPV)is not negative; turn down any opportunity when it is negative.
B)Take any investment opportunity where the net present value (NPV)exceeds the opportunity cost of capital; turn down any opportunity where the cost of capital exceeds the net present value (NPV).
C)When choosing among any list of investment opportunities where resources are limited,always choose those projects with the highest net present value (NPV).
D)If the difference between the present cost of an investment and the present value (PV)of its benefits after a fixed number of years is positive the investment should be taken,otherwise it should be rejected.
E)If the NPV is positive and the initial investment will be recovered within a certain time period,the investment should be taken.

Question

Quizplus · Accepted Answer

The Net Present Value (NPV) rule states that an investment should be accepted if the NPV is not negative, meaning that the present value of its cash flows exceeds its initial cost, and rejected if the NPV is negative. This rule directly aligns with choice A, which accurately describes the NPV rule by suggesting to take any investment opportunity where the NPV is not negative and to turn down any opportunity when it is negative.

Which of the Following Best Describes the Net Present Value