Without using formulas, provide a definition of net present value (NPV).
A) A project analysis tool that measures the acceptability of a project through the difference between a project's initial investment and whether the present value of its cash flow will repay the investment.
B) A project analysis tool that measures the acceptability of a project by determining the amount of profit that can be expected based on an investment made.
C) A project analysis tool that measures the acceptability of a project by determining the length of time required for an investment's discounted cash flows to equal its initial cost.
D) A project analysis tool that determines the amount of time required for an investment to generate cash flows to recover its initial cost.
E) A ranking method used to assess projects. PI greater than 1 signify positive NPV projects, while PI less than 1 signify negative NPV projects.

Question

Quizplus · Accepted Answer

Net Present Value (NPV) is a financial metric used to evaluate the profitability of an investment or project. It calculates the difference between the present value of cash inflows and the present value of cash outflows over a period of time. Choice A accurately describes NPV as a tool that measures the acceptability of a project by comparing the present value of its cash flows against the initial investment, to determine if the project will repay the investment and by how much.

Without Using Formulas, Provide a Definition of Net Present Value