Loading practice questions
Which of the following statements about Net Present Value (NPV) is correct?
(C) NPV is the difference between the present value of cash inflows and the initial investment
Explanation:
The correct answer is C: NPV is the difference between the present value of cash inflows and the initial investment.
NPV accounts for the time value of money by discounting future cash flows. A positive NPV indicates the project adds value and should be accepted; a negative NPV means it should be rejected. NPV and IRR may occasionally give conflicting decisions when evaluating mutually exclusive projects.