The net present value (NPV)of a stream of cash flows is equal to
A)the sum of all cash flows for all periods being considered.
B)the sum of all cash flows for all periods being considered divided by the number of periods.
C)the average of all cash flows for all periods being considered multiplied by the number of periods.
D)the sum of all cash flows for all periods being considered discounted by the rate of return for each period.

Question

Quizplus · Accepted Answer

The net present value (NPV) is the sum of all cash flows for all periods being considered discounted by the rate of return for each period. This is because the NPV takes into account the time value of money, which means that cash flows received in the future are worth less than cash flows received today. Therefore, the correct choice is D.

The Net Present Value (NPV)of a Stream of Cash Flows