An investment project for which the net present value is £300 would result in which of the following conclusions
A)The net present value is too small; the project should be rejected.
B)The investment project promises slightly more than the required rate of return.
C)The net present value method is not suitable for evaluating this project; the internal rate of return method should be used.
D)The investment project should only be accepted if net present value is zero; a positive net present value indicates an error(s) in the estimates associated with the analysis of this investment.

Question

Quizplus · Accepted Answer

A net present value of £300 means the project is expected to generate more cash inflows than outflows, resulting in a positive return. Therefore, it promises more than the required rate of return, and the project should be accepted. Option A is incorrect as a positive net present value indicates a profitable project. Option C is not the case as the net present value method is suitable for evaluating investment projects. Option D is incorrect because a positive net present value is generally a good sign, indicating that the project should be accepted.

An Investment Project for Which the Net Present Value Is