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If a project has a net present value equal to zero, then: 1. any delay in receiving the...

Question:

If a project has a net present value equal to zero, then:

1. any delay in receiving the projected cash inflows will cause the project to have a positive NPV.

2. the project's PI must be also be equal to zero.

3. the project earns a return exactly equal to the discount rate.

4. a decrease in the project's initial cost will cause the project to have a negative NPV.

5. the total of the cash inflows must equal the initial cost of the project.

B. How much are you willing to pay for one share of Jumbo Trout stock, if the company just paid a $0.70 annual dividend, the dividends increase by 2.5 percent annually, and you require a 10 percent rate of return?

Net Present Value


The net present value is the current value of the cash flows of the project. The cash flows are discounted using the discount rate that is given. The net present value is one of the most widely used metric by analysts because it provides a quick gauge of the profitability and value of the project to the firm.

The NPV decision rule is that a project should only be considered or accepted if the NPV of the project is greater than 0.

The formula to calculate the NPV is:

{eq}NPV = \sum \frac{CF_{t}}{(1 + i)^{t}} {/eq}

where CF is the cash flow in period t and i is the discount rate

Answer and Explanation:


If a project has a net present value equal to zero, then:

1. any delay in receiving the projected cash inflows will cause the project to have a...

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How to Calculate Net Present Value: Definition, Formula & Analysis

from Financial Accounting: Help and Review

Chapter 5 / Lesson 20
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