Which of the following statements is correct?
A) When making an investment decision, take the alternative with the positive NPV. Choosing this alternative is equivalent to receiving its NPV in cash today.
B) When making an investment decision, take the alternative with the negative NPV. Choosing this alternative is equivalent to receiving its NPV in cash today.
C) When making an investment decision, take the alternative with the highest NPV. Choosing this alternative is equivalent to receiving its NPV in cash today.
D) When making an investment decision, take the alternative with the lowest NPV. Choosing this alternative is equivalent to receiving its NPV in cash today.

Question

Quizplus · Accepted Answer

The correct statement is "When making an investment decision, take the alternative with the highest NPV. Choosing this alternative is equivalent to receiving its NPV in cash today." NPV stands for net present value, which is the present value of the expected cash flows minus the initial investment. A positive NPV means that the investment is expected to generate more cash than the amount invested, while a negative NPV means the opposite. Therefore, choosing the alternative with the highest NPV will maximize the expected cash flows and create value for the investor.

Which of the Following Statements Is Correct