Which of the following is true, concerning NPV?
A) When the NPV is positive, the sum of the cash flows from the project equal the initial investment.
B) When the NPV is negative, the sum of the cash flows from the project must also be negative
C) The project just recovers the initial investment, discounted by the hurdle rate.
D) The IRR is less than the RRR when the NPV is positive, after using the RRR as the discount rate.
E) The project recovers the initial investment and earns a return greater than the RRR.

Question

Quizplus · Accepted Answer

NPV represents the difference between the present value of cash inflows and the present value of cash outflows. A positive NPV means that the project has produced a return greater than the opportunity cost of the investment (RRR), which is reflected in the fact that the project recovers the initial investment and earns a return greater than the RRR. Therefore, option E is correct. Options A and B are incorrect because the sum of the cash flows from the project could be different from the initial investment. Option C is incorrect because the project's NPV is positive only when the cash inflows are greater than the initial investment discounted by the hurdle rate. Option D is incorrect because the IRR is the discount rate at which the NPV of the project is zero, and it is not related to the RRR.

Which of the Following Is True, Concerning NPV