Question: The net present value ( NPV ) increases when cash inflows are received earlier because NPV is determined by discounting future cash flows to their
The net present value NPV increases when cash inflows are received earlier because NPV is determined by discounting future cash flows to their present value using a discount rate. Due to the time value of money, a dollar today is more valuable than a dollar in the future. Therefore, receiving cash inflows sooner enhances their present value, leading to a higher NPV as the discounting effect is minimized.An investor should not proceed with an investment if the NPV is negative. A negative NPV indicates that the present value of future cash inflows is less than the initial investment cost, suggesting that the investment would lead to a net loss when accounting for the time value of money, thus making it financially unwise.
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