The Primary Idea Behind the Net Present Value Rule Is

question 300

Multiple Choice

The primary idea behind the net present value rule is that an investment:

• A) Is worthwhile if it creates value for the owners.
• B) Must have total cash flows that equal zero.
• C) Should be accepted if it enhances management's position.
• D) Should break-even from an accounting point of view.
• E) Should earn a rate of return that is less than the discount rate.

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Definitions:

Compounded Quarterly

Interest calculation method where interest is added to the principal sum of a deposit or loan every quarter.

Investments

The allocation of resources, often financial, in the expectation of generating an income or profit.

Monthly Compounded

Interest calculation method where interest is added to the principal balance monthly, leading to an increase in the amount of interest earned over periods.

Nominal Interest

The stated interest rate of a financial instrument, not accounting for inflation or compounding effects.