Asked by celeste richmond on Jun 30, 2024
Verified
If in evaluating a proposal by use of the net present value method there is a deficiency of the present value of future cash inflows over the amount to be invested, the proposal should be accepted.
Net Present Value
A method of evaluating the profitability of an investment by calculating the difference between the present value of cash inflows and outflows over a period of time.
Present Value
The value today of an anticipated sum of money or sequence of cash flows, when calculated with a certain return rate.
Future Cash Inflows
Future cash inflows are the expected receipts of cash that a business anticipates receiving from operations, investments, or financing activities in the future.
- Understand the significance of net present value in the assessment of capital investment proposals.
Verified Answer
KJ
Keisha JohnsonJul 01, 2024
Final Answer :
False
Explanation :
The net present value method compares the present value of future cash inflows with the initial investment. If the present value of future cash inflows is less than the amount to be invested, the proposal should be rejected as it would lead to a negative net present value. Therefore, the statement in the question is false.
Learning Objectives
- Understand the significance of net present value in the assessment of capital investment proposals.