An estimate of an asset's value to the company, calculated by discounting the future cash flows from the investment at an appropriate rate and then subtracting the initial cost of the investment, is known as:
A) Annual net cash flows.
B) Rate of return on investment.
C) Net present value.
D) Payback period.
E) Unamortized carrying value.

Question

Quizplus · Accepted Answer

Net present value (NPV) is a calculation used to estimate the value of an investment. It involves discounting the future cash flows that an investment is expected to generate back to present value using an appropriate discount rate. The initial cost of the investment is then subtracted from the sum of the present value of the expected cash flows to arrive at the net present value. A positive NPV indicates that the investment is expected to generate more cash than the initial cost, while a negative NPV indicates the opposite. Therefore, the option C - net present value - is the correct choice.

An Estimate of an Asset's Value to the Company, Calculated