According to the Net Present Value (NPV)rule,managers choose to invest if
A)The NPV of the project is less than zero
B)The NPV of the project is greater than zero
C)The NPV of the project is equal to zero
D)The NPV of the project is equal to the cost of capital

Question

​According to the Net Present Value (NPV)rule,managers choose to invest if
A)​The NPV of the project is less than zero
B)The NPV of the project is greater than zero
C)The NPV of the project is equal to zero
D)​The NPV of the project is equal to the cost of capital

Quizplus · Accepted Answer

According to the Net Present Value (NPV) rule, managers should choose to invest in a project only if its NPV is greater than zero. This is because a positive NPV indicates that the project is expected to generate a return that is higher than the cost of capital, which implies that the investment is worth undertaking. A negative NPV, on the other hand, means that the project is expected to generate a return that is lower than the cost of capital, which suggests that the investment is not viable. Similarly, a zero NPV implies that the investment will generate a return that is just enough to cover its cost, but not enough to generate value for the company. Hence, the best choice is B, as it represents the condition under which an investment is expected to create value for the company.

​According to the Net Present Value (NPV)rule,managers Choose to Invest

According to the Net Present Value (NPV)rule,managers Choose to Invest