The difference between the present value of an investment and its cost is the:
A)net present value.
B)internal rate of return.
C)payback period.
D)proﬁtability index.
E)discounted payback period.

Question

Quizplus · Accepted Answer

The present value of an investment is the value of the expected future cash flows discounted at the appropriate interest rate. The cost of the investment is the initial outlay required to make the investment. The difference between the two is the net present value (NPV). If the NPV is positive, the investment is considered worthwhile because it generates more cash inflows than outflows. If it is negative, the investment should not be undertaken because it reduces the value of the firm. Therefore, A is the correct choice.

The Difference Between the Present Value of an Investment and Its