Question: The Net Present Value (NPV) Equals the difference between the present value of an investments cash inflows and the present value of its outflows.

The Net Present Value (NPV)

• Equals the difference between the present value of an investment’s cash inflows and the present value of its outflows.

• Is a valid figure of investment merit.

• When positive, indicates the investment should be undertaken.

• Is an estimate of the expected increase or decrease in wealth accruing to the investor.

• Provides a practical decision rule for managers seeking to create shareholder value.

 LO.1

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