The principle that an investment should be accepted if the difference between the investment's market value and its cost is positive and rejected if the difference is negative is referred to as the:
A) Average accounting return rule.
B) Internal rate of return rule.
C) Profitability index rule.
D) Discounted payback rule.
E) Net present value rule.

Question

Quizplus · Accepted Answer

The Net Present Value (NPV) rule states that an investment should be accepted if the NPV is positive, which means the present value of its cash flows exceeds its cost, and rejected if the NPV is negative. This principle directly relates to the difference between an investment's market value and its cost being positive or negative.

The Principle That an Investment Should Be Accepted If the Difference