Asked by Lindsey Marie on May 29, 2024
Verified
If in evaluating a proposal by use of the net present value method there is an excess of the present value of future cash inflows over the amount to be invested, the rate of return on the proposal exceeds the rate used in the analysis.
Net Present Value
A method used in capital budgeting to evaluate the profitability of an investment by calculating the total present value of its expected future cash flows minus the initial investment cost.
Rate Of Return
The gain or loss on an investment over a specified period, expressed as a percentage of the investment's initial cost.
Present Value
The present worth of a future amount of money or series of cash flows, calculated using a given interest rate.
- Gain insight into the function of net present value in capital investment proposal evaluations.
Verified Answer
DN
Donia NimehMay 31, 2024
Final Answer :
True
Explanation :
When the present value of future cash inflows exceeds the amount to be invested, it means that the project is expected to generate a positive net present value (NPV). This also implies that the rate of return on the proposal exceeds the rate used in the analysis. Therefore, the statement is true.
Learning Objectives
- Gain insight into the function of net present value in capital investment proposal evaluations.