When Computing the Net Present Value of a Project, the Net

question 66

Multiple Choice

When computing the net present value of a project, the net amount received from salvaging the fixed assets used in the project is:

• A) Subtracted from the initial cash outlay.
• B) Included in the final cash flow of the project.
• C) Excluded from the analysis since it occurs only when the project ends.
• D) Subtracted from the original cost of the assets.
• E) Added to the net present value of the project to determine if the project is acceptable.

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Definitions:

Cash Flows

The net amount of cash and cash-equivalents being transferred into and out of a business.

Net Present Value

A financial metric used to evaluate the profitability of an investment, representing the difference between the present value of cash inflows and outflows over a period.

Capital Budgeting

The process of evaluating and selecting long-term investments that are in line with the goal of maximizing shareholder wealth.

Investments

Assets or items acquired with the goal of generating income or appreciation in value over time.