Question

7. Which of the following statements is true if the Net Present Value (NPV) is positive?
a) The IRR must be greater than 0
b) The discount rate exceeds the cost of capital
c) The profitability index equals 1
d) Accepting the project has an indeterminate effect on shareholders

Answer 1

Answer:

Option (a)

Explanation:

The IRR must be greater than 0 is true if the Net Present Value (NPV) of a positive

Answer 2

NET PRESENT VALUE

If Net Present Value is positive then the IRR must be greater than 0.

GETTING TO KNOW MORE ABOUT NET PRESENT VALUE:

* The difference between the current value of cash inflows and withdrawals over a period of time is known as net present value (NPV).

*  The net present value (NPV) is a calculation used in capital budgeting and investment planning to determine the profitability of a proposed investment or project. The net present value (NPV) is the outcome of computations performed to determine the current worth of a future stream of payments.

* A positive net present value (NPV) implies that a project's or investment's estimated profits (in current dollars) surpass its anticipated expenses (also in present dollars). An investment with a positive net present value (NPV) is deemed to be profitable.