ECONOMICS

Detailed explanation-1: -If NPV is positive, the project is expected to earn more than the firm’s cost of capital. Accepting negative NPV projects will reduce shareholders’ wealth. If the NPV is positive, the project’s cost is less than the project’s expected benefit.

Detailed explanation-2: -Answer and Explanation: The correct answer is A) Accept a project if NPV > cost of investment. The net present value estimates the current worth of a project by taking the present value of the future cash flows minus the cost of investment.

Detailed explanation-3: -A positive NPV indicates that the projected earnings generated by a project or investment-discounted for their present value-exceed the anticipated costs, also in today’s dollars. It is assumed that an investment with a positive NPV will be profitable. An investment with a negative NPV will result in a net loss.

Detailed explanation-4: -A positive NPV suggests that the estimated return on the project is greater than the required return for the project. The NPV decision rule is to accept a project whose NPV is greater than zero because this investment should increase shareholder wealth.

Detailed explanation-5: -If the calculated NPV of a project is negative (< 0), the project is expected to result in a net loss for the company. As a result, and according to the rule, the company should not pursue the project.