Question

A project should be rejected if NPV is _____ and accepted if NPV is _____. Less...

A project should be rejected if NPV is _____ and accepted if NPV is _____.

Less than 1; greater than 1

Less than 0; greater than 0

Greater than 1; less than 1

Greater than 0; less than 0

Equal to 1; Greater than 1

Equal to 0; Greater than 0
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Answer #1

Less than 0 , Greater than 0 is the correct answer

The Net present value is the measure of the value of the project in present which is going to generate taking into consideration od risk which is the cost of capital as the firm need to incurr this cost to fund the project.

To calculate net present value we discount the future cash flows by the discount factor of the cost of the capital then add the total present value of each year to arrive at net present value, If it is less than 0 then it means it is giving lesser return than the cost of the capital and if it is more than 0 then it means it is giving higher return than the cost of the capital.

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