Danielle, the regional manager of CDz music store, is trying to determine if the store should invest in a new computerized inventory tracking system. Using financial analysis, she would decide that the investment was desirable in which of the following situations?
A) if total positive cash flows were greater than total negative cash flows
B) if its NPV were equal to or greater than zero
C) if the firm had enough cash to make the purchase without having to arrange additional financing
D) if its NPV were less than zero

Question

Quizplus · Accepted Answer

NPV (Net Present Value) is a financial analysis method that takes into account the time value of money, and it is used to determine the profitability of an investment. A positive NPV indicates that the investment is expected to generate more cash flows than the cost of capital, resulting in a net gain for the firm. Therefore, choice B is the best answer. Choice A is incorrect because it only considers the cash flows without taking into account the timing of those cash flows. Choice C is incorrect because having enough cash to make the purchase does not necessarily mean that the investment is profitable. Choice D is incorrect because a negative NPV indicates that the investment is expected to generate less cash flows than the cost of capital, resulting in a net loss for the firm.

Danielle, the Regional Manager of CDz Music Store, Is Trying