Question

In order to calculate the net present value of a proposed investment, it is necessary to know:

A. the cash flows expected from the investment.
B. the net income expected from the investment.
C. the interest rate paid on funds borrowed to make the investment.
D. the cash dividends paid on the stock each year.

Answer 1

To calculate the net present value of an investment, you need to know the cash flows expected from the investment and the interest rate used to discount those cash flows.

Step-by-step explanation:

The net present value (NPV) is a financial calculation used to assess the profitability of an investment. To calculate the NPV, you need to know the cash flows expected from the investment, which includes both inflows and outflows of cash. It is also necessary to know the interest rate used to discount the future cash flows to their present value.

The net income expected from the investment and the cash dividends paid on the stock each year are not directly related to calculating the NPV.