When computing the NPV of a capital budgeting project, one should NOT
A) estimate the cost of the project.
B) discount the future cash flows over the project's expected life.
C) ignore the salvage value.
D) make a decision based on the project's NPV.

Question

Quizplus · Accepted Answer

Ignoring the salvage value would result in an inaccurate calculation of the project's net present value. The salvage value represents the estimated value of the project's assets at the end of its useful life and should be included in the calculation of the project's cash flows. Therefore, it is important to estimate the cost of the project, discount the future cash flows, and make a decision based on the project's NPV.

When Computing the NPV of a Capital Budgeting Project, One