A Project Has a Net Present Value of $1,200 and a Project

question 29

Multiple Choice

A project has a net present value of $1,200 and a project life of four years.Which one of these statements must be true?

• A)The project's IRR is less than the required rate of return.
• B)The project is expected to return $1,200 in Time 0 dollars over and above the discount rate.
• C)The project would also have a positive net present value if Year 4 was omitted.
• D)The project's cash inflows exceed its outflows by $1,200 over the four years.
• E)The project is expected to return $1,200 in Year 4 dollars over and above the initial investment.

---

Definitions:

Cash Payments

Outflows of cash made by a business, including expenses, creditor payments, and other liabilities, during a specific period.

Statement of Cash Flows

It's a financial document summarizing the total cash entering a company from operational earnings and investment revenues, as well as the cash spent on business-related activities and investment outlays during a specific period.

Operating Activities

Business activities related to the day-to-day operations that generate revenue, such as sales and purchasing of inventory.

Indirect Method

In accounting, a method used to calculate cash flows from operating activities by starting with net income and adjusting for non-cash transactions.