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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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If the NPV is positive, it signals

  1. a. that the initial investment has been recovered.
  2. b. that the required rate of return has been earned.
  3. c. that the value of the firm has increased.
  4. d. All of these.
  5. e. Both a and b.

To determine

Identify the possible results of a positive NPV.

Explanation

Net Present Value:

The remaining balance of the present value of a project’s inflows and outflows is known as net present value (NPV). It is a discounting model of capital investment decision. A project with a positive NPV increases the wealth of a firm whereas a project with a negative NPV decreases the wealth of a firm.

a.

If NPV is positive, it means that the present value of cash inflow exceeds the present value of outflows and the initial investment is recovered. This statement is correct but other statements are correct as well. So, this option is incorrect.

b...

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