Practice Net Present Value (npv) (25.5.B.1) - Capital Budgeting Techniques

Practice: Net Present Value (NPV)

Lesson 25.5.B.1Capital Budgeting Techniques

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9 questions

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6 sample questions

Question 1.
What does NPV stand for?
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Think about how investments are evaluated over time.
Question 2.
Is a positive NPV good or bad?
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Remember, it means you're expected to make more than you spend.
3Question 3.
What does a positive NPV indicate about a project?
- The project is not profitable.
- The project is profitable.
- Insufficient data.
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Remember the acceptance criteria for NPV.
4Question 4.
True or False: NPV accounts for the time value of money.
- True
- False
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Think about how money's value changes over time.
Question 5.
A company is considering two different projects. Project A has cash inflows of $150,000 for 5 years and requires an initial investment of $400,000. Project B generates cash inflows of $250,000 for 3 years with the same initial investment. If the discount rate is 10%, calculate the NPV for both projects to determine which one the company should accept.
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Carefully break down the cash flows year by year.
Question 6.
Assume you estimate future cash flows of $500,000, $600,000, and $700,000 over the next three years for a new project with an initial investment of $1,500,000 and a discount rate of 5%. Calculate the NPV and suggest whether to proceed with this project.
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Calculate each cash inflow's present value to arrive at the total NPV.

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