Question

If a project has a salvage value greater than zero, the salvage value will:

a) Increase the project's net present value.
b) Decrease the project's net present value.
c) Have no effect on the project's net present value.
d) Make the project financially unstable.

Answer 1

If a project has a salvage value greater than zero, it will increase the project's net present value.

Step-by-step explanation:

If a project has a salvage value greater than zero, then it will increase the project's net present value. Net present value (NPV) is a financial metric that takes into account the time value of money, and it represents the difference between the present value of cash inflows and outflows of a project. The salvage value is the estimated resale value of an asset at the end of its useful life, and if it is positive, it adds to the cash inflows in the future, thus increasing the NPV. For example, if a company invests in a project and expects to sell the project's assets at the end, a higher salvage value means more cash inflow, increasing the NPV of the project.