Multiple Choice
A positive operating cash flow indicates that the firm is generating enough cash to:
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4. Merchandising Operations
Net Sales
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
A negative net present value (NPV) indicates that the:
A
project is expected to decrease the value of the firm
B
project has no impact on the firm's cash flows
C
project is expected to increase the value of the firm
D
project will generate a return equal to the required rate of return
Verified step by step guidance1
Understand the concept of Net Present Value (NPV): NPV is a financial metric used to evaluate the profitability of a project or investment. It is calculated by summing the present values of all cash inflows and outflows associated with the project, discounted at the required rate of return.
Interpret the meaning of a negative NPV: A negative NPV indicates that the present value of cash outflows exceeds the present value of cash inflows. This means the project is expected to result in a net loss in value for the firm.
Relate NPV to the firm's value: A negative NPV suggests that undertaking the project will decrease the overall value of the firm, as the project does not generate sufficient returns to cover its costs and meet the required rate of return.
Eliminate incorrect options: Review the provided options and eliminate those that do not align with the interpretation of a negative NPV. For example, a negative NPV does not indicate that the project has no impact on cash flows or that it will generate a return equal to the required rate of return.
Select the correct answer: Based on the analysis, the correct interpretation of a negative NPV is that the project is expected to decrease the value of the firm.
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