Final answer:
The question is about evaluating a project's financial viability with Net Present Value (NPV). A positive NPV indicates the project's expected future cash flows, discounted for the time value of money, exceed its costs. The student is advised that a positive NPV means the project could be beneficial for the company.
Step-by-step explanation:
The question refers to evaluating a project investment using Net Present Value (NPV). NPV is a financial metric used in capital budgeting to assess the profitability of a project or investment. The NPV calculation discounts all cash flows associated with the project to present value and subtracts the initial investment. If the result is positive, it implies that the projected earnings, discounted for their time value, exceed the costs, and often indicates that the project can be considered financially viable. In simple terms, a positive NPV suggests that the project is expected to generate more wealth than it costs, and hence, should be pursued.
To be more specific, the Net Present Value is calculated by using a discount rate, which usually reflects the cost of capital or desired rate of return. The future cash flows are estimated based on realistic assumptions and then discounted back to the present using the chosen rate. If the sum of these discounted cash flows, minus the initial investment, is positive, the company should, theoretically, start the company or project, as it's expected to add value to the shareholders.