Final answer:
The Net Present Value (NPV) rule states that an investment should be accepted if the NPV is positive and rejected if it is zero or negative, as it represents the difference between the present value of cash inflows and outflows.
Step-by-step explanation:
The correct statement about the Net Present Value (NPV) rule is: An investment should be accepted if the NPV is positive and rejected if it is zero or negative.NPV is a method used to evaluate the attractiveness of an investment opportunity. It calculates the difference between the present value of cash inflows and the present value of cash outflows over a period of time. A positive NPV means that the projected earnings (in present dollars) exceed the anticipated costs (also in present dollars), which typically indicates a good investment. On the other hand, a negative NPV indicates that the present value of the investment's cash outflows is greater than the present value of its inflows, suggesting that the investment may result in a net loss.
When evaluating different investment options, financial decision-makers also consider the rate of return and associated risks. The rate of return is an appealing aspect of investments, whereas risk is a deterrent. Investment shifts occur as investors seek to maximize returns while minimizing risks.The correct statement of the net present value (NPV) rule is option D) An investment should be accepted if the NPV is positive and rejected if the NPV is zero or negative.The NPV rule is commonly used in finance to evaluate investment projects. It is calculated by subtracting the initial investment from the present value of future cash flows. If the result is positive, it indicates that the investment is expected to generate a return higher than its cost and should be acceptedOn the other hand, if the NPV is zero or negative, it suggests that the investment will not generate enough value to cover its cost or achieve a positive return, and therefore should be rejected.