Under the net present value method, a project is normally accepted when its NPV is:
Correct answer: C. Greater than or equal to zero
- A. Less than zero
- B. Equal to its initial cost
- C. Greater than or equal to zero
- D. Greater than its accounting profit
Explanation
An NPV of zero means the project earns exactly the required return, while a positive NPV adds value to the firm. A negative NPV indicates that the project fails to cover the required return.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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