Asked by Abo Yousef Khaleel on Jun 04, 2024
Verified
An analysis of a proposal by the net present value method indicated that the present value of future cash inflows exceeded the amount to be invested. Which of the following statements best describes the results of this analysis?
A) The proposal is desirable, and the rate of return expected from the proposal exceeds the minimum rate used for the analysis.
B) The proposal is desirable, and the rate of return expected from the proposal is less than the minimum rate used for the analysis.
C) The proposal is undesirable, and the rate of return expected from the proposal is less than the minimum rate used for the analysis.
D) The proposal is undesirable, and the rate of return expected from the proposal exceeds the minimum rate used for the analysis.
Net Present Value Method
A financial analysis technique used to assess the profitability of an investment by calculating the difference between the present value of cash inflows and outflows.
Future Cash Inflows
Expected cash receipts or revenues generated from business activities in future periods.
Rate of Return
The gain or loss of an investment over a specified period, expressed as a percentage of the investment’s cost.
- Comprehend the principle of net present value and its utilization in making investment choices.
Verified Answer
IM
Ivette MattiJun 09, 2024
Final Answer :
A
Explanation :
If the present value of future cash inflows exceeds the amount to be invested, then the net present value is positive. This means that the proposal is desirable, and the rate of return expected from the proposal exceeds the minimum rate used for the analysis.
Learning Objectives
- Comprehend the principle of net present value and its utilization in making investment choices.