A project is accepted under the net present value method when
A)the net present value is zero or negative.
B)the total amount of cash inflows exceeds the purchase price of the asset.
C)the purchase price of the asset is less than the present value of net cash inflows.
D)the present value of net cash inflows exceeds a predetermined minimum amount.

Question

Quizplus · Accepted Answer

The net present value method accepts a project if the purchase price of the asset is less than the present value of net cash inflows. This means that the project is expected to generate positive cash flows that exceed the cost of the investment. A positive net present value indicates that the project will add value to the company and is therefore a good investment. Options A, B, and D are incorrect because they do not reflect the criteria used in the net present value method.

A Project Is Accepted Under the Net Present Value Method