Asked by
Laisa Temelo
on Oct 25, 2024
Verified
The "NPV Criterion" is that a firm should invest in a new capital project if:
A) the present value of the expected future cash flows is larger than the present value of the cost of the investment.
B) the future value of the expected future cash flows is larger than the cost of the investment.
C) financing can be secured on the basis of new bonds.
D) financing can be secured on the basis of new stocks.
E) financing is not necessary because there are enough liquid assets in the company's portfolio to afford the investment.
NPV Criterion
A financial metric used to assess the profitability of an investment, calculating the net present value of all cash flows associated with it.
Future Cash Flows
Estimates of the amount of money expected to be received or paid out in the future through investment, business operations, or other financial activities.
Investment
The act of allocating resources, typically money, with the expectation of generating an income or profit.
- Evaluate the fiscal soundness of projects by applying Net Present Value and different mechanisms for deciding on investments.
Verified Answer
EM
Learning Objectives
- Evaluate the fiscal soundness of projects by applying Net Present Value and different mechanisms for deciding on investments.