Question

If a project has a net present value equal to zero, then:

Group of answer choices the project earns a return exactly equal to the discount rate.

the total of the cash inflows must equal the initial cost of the project.

a decrease in the project's initial cost will cause the project to have a negative NPV.

any delay in receiving the projected cash inflows will cause the project to have a positive NPV.

the project's PI must be also be equal to zero.

Answer 1

• NPV = 0 happens when the discount rate is the IRR and it is the rate at which the CFs are reinvested. So the first statement is true.
• The sum of PV of all CF inflows should equal the sum of PV of all CF outflows. So the second statement is not entirely correct.
• If NPV is 0 at the current rate, then the decrease in the rate will lead to a positive NPV.So the third statement is not correct.
• Delay in CFs will reduce the PV so the so the NPV is negative.So the fourth statement is not correct.
• PI = 1+ NPV/initial investment. If NPV = 0 then the PI = 1 so the fifth statement is not correct.