Jason, the regional manager for a large electronics firm, is trying to determine whether a new warehouse is a good investment. After working with his firm's financial managers, he concludes that the project carries a negative net present value. What should Jason do-and why?
A) He should not invest in the warehouse-a negative NPV means the firm doesn't have enough money to afford the investment.
B) He should invest in the warehouse-a negative NPV means that the cost of financing the warehouse is less than the cost of any other investment.
C) He should not invest in the warehouse-a negative NPV means that the present value of the positive cash flows are not high enough to justify the costs of the warehouse.
D) He should invest in the warehouse-a negative NPV indicates that failing to do so will reduce the value of the firm to its shareholders.

Question

Quizplus · Accepted Answer

A negative net present value means that the present value of future cash flows from the investment is less than the cost of the investment. Therefore, the costs of the warehouse are not justified by the expected cash flows. Hence, Jason should not invest in the warehouse.

Jason, the Regional Manager for a Large Electronics Firm, Is