Question

Your project has expected cash inflows of $7.8 million in today's dollars. The project's initial investment is $9.2 million. Which of the following is true?

A: The discounted cash flows are lower than the initial investment, so this project should be rejected.
B: The discounted cash flows are lower than the initial investment, so this project should be accepted.
C: NPV is less than zero, so this project should be rejected.
D: NPV is greater than zero, so this project should be accepted.

Answer 1

The correct answer is D: NPV is greater than zero, so this project should be accepted.

Step-by-step explanation:

The correct answer is D: NPV is greater than zero, so this project should be accepted.

Net Present Value (NPV) is a financial measure used to evaluate the profitability of an investment. It calculates the difference between the present value of the expected cash inflows and the initial investment.

In this case, the expected cash inflows of $7.8 million in today's dollars are greater than the initial investment of $9.2 million. Therefore, the NPV is greater than zero, indicating that the project should be accepted.