The net present value of a project is equal to the:
A)present value of the future cash flows.
B)present value of the future cash flows minus the initial cost.
C)future value of the future cash flows minus the initial cost.
D)future value of the future cash flows minus the present value of the initial cost.
E)sum of the project's anticipated cash inflows.

Question

Quizplus · Accepted Answer

The net present value (NPV) of a project is calculated by subtracting the initial cost from the present value of the future cash flows. This is because NPV is a measure of the value a project creates for its investors in today's dollars, taking into account the time value of money. Option A is inaccurate because it only represents the cash inflows, without adjusting for the initial cost. Option C and D are incorrect because they either focus on future values rather than present values or combine future and present values in an unclear way. Option E is not a complete measure of a project's value because it does not incorporate the initial cost or consider the timing of cash flows.

The Net Present Value of a Project Is Equal to The