Net Present Value _____________

question 34

Multiple Choice

Net present value _____________.

• A) Is equal to the initial investment in a project
• B) Compares project cost to the present value of the project benefits
• C) Is equal to zero when the discount rate used is less than the IRR
• D) Is simplified by the fact that future cash flows are easy to estimate
• E) Requires the firm set an arbitrary cutoff point for determining whether an investment is acceptable

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Definitions:

Population Parameter

A numerical value that represents a characteristic of a population, such as the population mean or variance.

Expected Value

The mean of all possible values for a random variable, weighted by their respective probabilities.

Variance

A measure of the dispersion or spread of a set of data points, calculated as the average of the squared differences from the mean.

Point Estimator

A point estimator is a statistic used to estimate the value of an unknown parameter of a population.