If the PV of inflows is $1,100,000 and the initial investment is $1,000,000, what is the net present value (NPV) of the project?

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Multiple Choice

If the PV of inflows is $1,100,000 and the initial investment is $1,000,000, what is the net present value (NPV) of the project?

Explanation:
The concept tested is that NPV equals the present value of inflows minus the initial investment. Here the inflows’ present value is 1,100,000 and the initial outlay is 1,000,000, so NPV = 1,100,000 − 1,000,000 = 100,000. A positive NPV means the project adds value at the discount rate used to compute the inflows, so it’s worth pursuing. If the inflows’ PV equaled the investment, NPV would be zero; if it were lower, NPV would be negative.

The concept tested is that NPV equals the present value of inflows minus the initial investment. Here the inflows’ present value is 1,100,000 and the initial outlay is 1,000,000, so NPV = 1,100,000 − 1,000,000 = 100,000. A positive NPV means the project adds value at the discount rate used to compute the inflows, so it’s worth pursuing. If the inflows’ PV equaled the investment, NPV would be zero; if it were lower, NPV would be negative.

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