Final answer:
When the net present value is greater than zero, the company should invest because it indicates that the project's returns exceed its costs, thereby potentially increasing the company's value and profitability.
Step-by-step explanation:
If the net present value (NPV) is greater than zero, the company should: a. invest.
The net present value is a critical financial metric used to assess the profitability of an investment. An NPV greater than zero suggests that the expected returns exceed the project's costs, including the cost of capital. When a company faces a decision on whether to invest in a project, an NPV greater than zero indicates that the project should theoretically increase the value of the company, signaling that the investment is likely to be profitable.
This is because the cash flows generated by the project will, in present value terms, exceed the initial outlay. The decision to invest is based on the principle that the company will benefit from an increase in the value of the investment over time, leading to higher profits or potential returns to shareholders, whether through reinvesting for growth or potential dividends.