Asked by Efrem Wondale on Jun 14, 2024
Verified
An investment should be undertaken if the present value of an expected stream of earnings from the investment exceeds the cost of the investment necessary to undertake it.
Present Value
The current worth of a future sum of money or stream of cash flow given a specified rate of return, used in discounting future incomes or expenses.
Expected Stream
The anticipated sequence or flow of specific items or events, often used in the context of revenue or income over time.
Investment
Investment involves allocating resources, usually financial assets, with the expectation of generating an income or profit over time.
- Understand the criterion for making investment decisions based on present value calculations.
Verified Answer
AH
Alexander HartzlerJun 16, 2024
Final Answer :
True
Explanation :
This statement is true because the fundamental principle of investment decision-making is that an investment is considered worthwhile if the present value of its expected future earnings (or cash flows) exceeds the initial cost required to make the investment. This ensures that the investment will generate a positive net present value, indicating profitability.
Learning Objectives
- Understand the criterion for making investment decisions based on present value calculations.