[amp_mcq option1=”the present value of cash outflows is greater than the future value of cash outflows” option2=”the future value of cash inflows is greater than the present value of cash outflows” option3=”the present value of cash outflows is greater than the present value of cash inflows” option4=”the present value of cash inflows is greater than the present value of cash outflows” correct=”option3″]
The correct answer is: C. the present value of cash outflows is greater than the present value of cash inflows.
The net present value (NPV) is a method of calculating the present value of a future stream of cash flows. It is calculated by taking the sum of the present values of all future cash flows and subtracting the initial investment.
A negative NPV indicates that the present value of the future cash flows is less than the initial investment. This means that the project is not expected to generate a profit.
Option A is incorrect because the future value of cash outflows is not relevant to the calculation of NPV. The only relevant values are the present values of the cash flows.
Option B is incorrect because the present value of cash inflows is not relevant to the calculation of NPV. The only relevant values are the present values of the cash flows.
Option D is incorrect because the present value of cash inflows is greater than the present value of cash outflows. This would result in a positive NPV, which indicates that the project is expected to generate a profit.