Question

Net Present Value is a method of calculating an investment's rate of return. It is the discount rate where the present value of cash inflows from the project exactly equals the initial investment. Select one:

A. True
B. False

Answer 1

The statement is false because NPV measures profitability and is not a rate of return; the correct concept for the rate that makes NPV equal to zero is the IRR.

Step-by-step explanation:

The statement is false. Net Present Value (NPV) is not a rate of return; rather, it is the calculation of the difference between the present value of cash inflows and the present value of cash outflows over the duration of an investment. It's a measure to assess the profitability of an investment. The discount rate mentioned in the statement is actually the Internal Rate of Return (IRR), which is the rate that makes the NPV of all cash flows equal to zero. Applying the concept of present discounted value is crucial not just in finance, but also in evaluating various investments and proposals across different fields, from government projects to environmental policies.