The net present value of an investment made by a firm represents the contribution of that investment to the ____ of the firm.
A) book value
B) profit
C) value
D) cash flow

Question

Quizplus · Accepted Answer

The net present value (NPV) represents the value of an investment in today's dollars, taking into account the time value of money. Therefore, the NPV of an investment is a measure of how much value it will add to the firm over its lifetime. It takes into account not only the expected cash flows generated by the investment, but also the opportunity cost of investing in that particular project. Ultimately, the goal of any investment is to add value to the firm, and the NPV is a useful tool for evaluating whether a particular investment is expected to accomplish that goal.

The Net Present Value of an Investment Made by a Firm