Net present value represents the difference between the ________.
A) total net income of the project and the initial investment
B) initial investment and the residual value
C) future value of the cash flows and the present value of the cash flows
D) present value of the investment's net cash inflows and the investment's initial cost

Question

Quizplus · Accepted Answer

Net present value (NPV) is calculated by subtracting the initial investment from the present value of the investment's net cash inflows. Therefore, option D is the correct answer. Option A is incorrect because it only considers net income and not the time value of money. Option B is incorrect because it only considers the initial and residual values, and not the cash flows. Option C is incorrect because it compares the future value of cash flows to the present value of cash flows, which does not give the net present value.

Net Present Value Represents the Difference Between the ________