A project's cash flows are discounted at the appropriate cost of capital of 10%. The net present value of the project is determined to be zero. This means that
A)the project offers a return of 10%.
B)undertaking the project will result in a decrease in firm value.
C)undertaking the project will result in an increase in firm value.
D)the project offers a return of 0%.

Question

Quizplus · Accepted Answer

When the net present value (NPV) of a project is zero, it means that the project's returns are exactly equal to the discount rate (in this case, 10%). This indicates that the project offers a return of 10%, matching the cost of capital.

A Project's Cash Flows Are Discounted at the Appropriate Cost