The net present value of a project tells management what decision to make on that investment. If the net present value is negat management should: accept the project because the cost is less than the revenue, thereby adding value to the firm. O reject the project because the present value of future cash-flows is greater than the cost of the project. O reject the project because accepting would reduce the value of the firm. O accept or reject depending on the project's payback period.

The net present value of a project tells management what decision to make on that investment. If the net present value is negat management should: accept the project because the cost is less than the revenue, thereby adding value to the firm. O reject the project because the present value of future cash-flows is greater than the cost of the project. O reject the project because accepting would reduce the value of the firm. O accept or reject depending on the project's payback period.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

In a few sentences, answer the following question as completely as you can. According to your textbook, “an investment should be accepted if the net present value is positive and rejected if it is negative” (p. 239). What does an NPV of zero mean?If you were a financial decision maker facing a project with NPV of zero (or close to zero) what would you do? Can you think of any other factors that might influence your decision?
I think question 3 is not answered clearly. If Project A is rejected due to negative NPV, then all positive NPVs projects should be accepted. The answer is not clear. Please correct me if I am missing something. Question 3) If the firm uses the discounted-payback rule, will it accept any negative NPV projects? Will it turn down any positive NPV projects? How do you know? Your answer is: No Due to Project A's negative NPV, it cannot cover the initial investment within its useful life. Will it turn down any positive NPV projects? It will reject projects with positive NPVs but not those with negative NPVs. If all potential cash flows are taken into account but the project still doesn't reach the designated cutoff point, the NPV can still be positive.
1) What is the company's WACC? 2) Should the company take the projects? Assume that the projects have the same risk as an average project for your firm. 3) If one project is depended on the other in a way that the company can only take both projects, should it take it?
How can I explain these?
Which of the following statements is false? The equivalent annual value of a project is equal to the net present value of a project held in perpetuity, divided by the required rate of return. None of the given options is false. Management may select a project with a lower net present value because qualitative factors may render the other project less attractive. The rejection of positive net present value projects by management is inconsistent with the objective of maximising shareholder wealth.
Current Design Co. is considering two mutually exclusive, equally risky, and not repeatable projects, S and L. Their cash flows are shown below. The CEO believes the IRR is the best selection criterion, while the CFO advocates the NPV. If the decision is made by choosing the project with the higher IRR rather than the one with the higher NPV, how much, if any, value will be forgone, i.e., what's the chosen NPV versus the maximum possible NPV? Note that (1) "true value" is measured by NPV, and (2) under some conditions the choice of IRR vs. NPV will have no effect on the value gained or lost. r: 8% Year CFS CFL $149.21 $130.31 $121.42 $101.96 $98.10 0 -$1,200 -$2,800 $700 $600 2 $600 $735 3 $150 $700 4 $110 $1,800
d. Consider the following statement "If an analyst decides to use real options methodology to value a project, estimating a standard Discounted Cash Flow model is useless". Do you agree with this statement? Explain your answer.

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