A firm is evaluating an investment proposal which has an initial investment of $5,000 and cash flows presently valued at $4,000. The net present value of the investment is __________.
A) $1.25
B) $0
C) -$1,000
D) $1,000

Question

Quizplus · Accepted Answer

The net present value can be calculated by subtracting the initial investment from the present value of cash flows. 
Net present value = Present value of cash flows - Initial investment 
= $4,000 - $5,000 
= -$1,000 
The negative net present value indicates that the investment will not generate sufficient returns to cover the initial investment and the required rate of return. Therefore, the firm should reject the proposal.

A Firm Is Evaluating an Investment Proposal Which Has an Initial