Final answer:
The formula for finding the net present value involving a cash outflow now and positive cash flows in the subsequent two years, as provided, is correct. It discounts each future cash flow to its present value considering the discount rate.
Step-by-step explanation:
The formula mentioned in the question is indeed correct for finding the net present value (NPV) of cash flows over a period of two years considering a cash outflow now (C0), and positive cash flows in the first (C₁) and second year (C₂). The NPV formula is:
-C0 + C₁/(1 + r)^1 + C₂/(1 + r)^2
To calculate NPV, each future cash flow is discounted to its present value and then summed up. For example, if a firm is expecting a cash outflow of $15 million at present, $20 million in one year, and $25 million in two years, and the discount rate (interest rate) is 15%, the calculation would be as follows:
-$15 million + ($20 million / (1 + 0.15)^1) + ($25 million / (1 + 0.15)^2).
Subsequently, you add up all these present values to get the final NPV, which tells you the value of these future benefits in today's dollars. Therefore, the statement in question is a) True.