Net present value _____________.
A) Is equal to the initial investment in a project
B) Compares project cost to the present value of the project beneﬁts
C) Is equal to zero when the discount rate used is less than the IRR
D) Is simpliﬁed by the fact that future cash ﬂows are easy to estimate
E) Requires the ﬁrm set an arbitrary cutoff point for determining whether an investment is acceptable

Question

Quizplus · Accepted Answer

Net present value compares the present value of the project benefits to the project cost, taking into account the time value of money. It is not equal to the initial investment (A), and it is not simplified by easy-to-estimate future cash flows (D). It does require the firm to set a cutoff point, but this is not a defining characteristic (E). It is not equal to zero when the discount rate used is less than the IRR (C).

Net Present Value _____________