Projects with a Zero or Positive Net Present Value (NPV)

question 85

Multiple Choice

Projects with a zero or positive net present value (NPV) are accepted using the net present value method. Why is this so?

• A) Because a non-negative NPV ensures the company will be profitable.
• B) Because the company will have the relevant cash flow to pay its debts as, and when, they fall due.
• C) Because the return is at least equal to the cost of capital.
• D) Because a non-negative NPV ensures the company will be profitable AND because the company will have the relevant cash flow to pay its debts as, and when, they fall due.

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Definitions:

Journal

A journal in accounting refers to a detailed record of all the financial transactions of a business, showing the debits and credits for each transaction.

Trial Balance

An accounting worksheet compiling all ledger balances into debit and credit columns that balance equally.

Debit Balances

The situation where the total debits in an account exceed the total credits, indicating assets or expenses.

Credit Balances

Balances in financial accounts indicating the amount owed by the account holder, often seen in liability and equity accounts.