Which of the Following Best Describes the Net Present Value

question 106

Multiple Choice

Which of the following best describes the Net Present Value rule?

• A)Take any investment opportunity where the net present value (NPV)is not negative; turn down any opportunity when it is negative.
• B)Take any investment opportunity where the net present value (NPV)exceeds the opportunity cost of capital; turn down any opportunity where the cost of capital exceeds the net present value (NPV).
• C)When choosing among any list of investment opportunities where resources are limited,always choose those projects with the highest net present value (NPV).
• D)If the difference between the present cost of an investment and the present value (PV)of its benefits after a fixed number of years is positive the investment should be taken,otherwise it should be rejected.
• E)If the NPV is positive and the initial investment will be recovered within a certain time period,the investment should be taken.

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Definitions:

Fixture

A piece of property that was originally moveable but has become attached to real property in such a way that it is legally considered part of the real property.

Subrogation

is a legal doctrine allowing one party (usually an insurer) to step into the shoes of another party to pursue rights or claims against a third party, often to recover amounts paid out in a claim.

Surety

A form of financial guarantee, wherein one party (the surety) agrees to take on the financial obligations of another if they default.

Reimbursement

The act of compensating someone for an expense incurred, often associated with business expenses or insurance claims.