The decision rule for an NPV analysis is to accept:
A) the smallest negative NPV.
B) the largest negative NPV.
C) the NPV closest to zero.
D) the largest positive NPV.

Question

Quizplus · Accepted Answer

The best decision rule for an NPV analysis is to accept the project with the largest positive NPV. This means that the project is expected to generate the highest amount of net cash inflows over its lifetime, which will create value for the organization. Choosing the largest negative NPV (B) or the smallest negative NPV (A) would mean accepting a project that is expected to generate net cash outflows, resulting in a loss for the organization. The NPV closest to zero (C) may be acceptable, but it does not necessarily mean that the project is the best option for the organization.

The Decision Rule for an NPV Analysis Is to Accept