The net present value of a project is projected at $210. How should this amount be interpreted? The project's cash inflows exceed its outflows by $210. The project will return an accounting profit of $210. The project's discounted cash flows are $210 less than its undiscounted cash flows. The project will increase the firm's cash account by $210 when the project is started. The project is earning $210 in addition to the project's required rate of return.

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Business

Tripp Hays

29 April, 18:01

The net present value of a project is projected at $210. How should this amount be interpreted? The project's cash inflows exceed its outflows by $210. The project will return an accounting profit of $210. The project's discounted cash flows are $210 less than its undiscounted cash flows. The project will increase the firm's cash account by $210 when the project is started. The project is earning $210 in addition to the project's required rate of return.

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Luna Friedman · Answer 1

The project is earning $210 in addition to the project's required rate of return

Explanation:

Net present value (NPV) refers to a technique of project planning and capital budgeting which is used to evaluate projects and arrive at a decision as to if taking them up would be beneficial for the organization.

Mathematically, it is expressed as,

= Present Value of future cash inflows - Present value of future cash outflows

Undertaking a project is considered feasible if NPV = 0 or positive.

NPV zero represents that required rate of return criteria is met and the project won't be non viable.

In the given case, the NPV is positive $210. This represents that the project is capable of generating $210 cash inflows over and above the project's required rate of return. Thus, such a project would be beneficial and should be taken up or invested into.