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Using NPV method, a project should be accepted if: a
Using NPV method, a project should be accepted if:
a. the project NPV is less than zero.
b. the project NPV is greater than zero.
c. both a and b.
d. none of them
Expert Solution
The NPV known as net present value, is defined as a value which is derived from an investment and is computed as shown below:
= - Initial investment + Present value of future cash flows
Present value is computed as follows:
= Future value / (1 + r)n
In case the NPV of a project is greater than zero, it signifies that the project has generated value to the firm and the project shall be accepted.
In case the NPV of a project is less than zero, it will lead to deterioration to the value of the firm and the project shall be rejected.
Hence the correct answer is option b.
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