When a project's net present value (NPV) exceeds zero, then:
A) the project should be accepted
B) the project will be acceptable using the payback period method
C) the IRR should be calculated to ensure that the project's IRR exceeds the cost of capital
D) the payback period is always less than one year

Question

Quizplus · Accepted Answer

A net present value (NPV) of zero indicates that the project is expected to generate exactly enough cash flows to cover the initial investment and required rate of return. Therefore, if the NPV exceeds zero, the project is expected to generate more cash flows than required to meet these criteria and should be accepted. The payback period method and internal rate of return (IRR) are methods used to evaluate the attractiveness of a project, but they do not override the importance of a positive NPV. The payback period may be longer than one year and is not a definitive criterion for project acceptability, while the IRR may be impacted by financing considerations and is not always the best measure of profitability.

When a Project's Net Present Value (NPV) Exceeds Zero, Then