Respuesta :
The firm has only $20 million to invest. What is the maximum NPV that the company can obtain?
A. 3.5
B. 4.0
C. 4.5
D. 5.0
E. 5.5
C. 4.5
NPV is the present value of the anticipated cash flows. the amount of money invested today
In contrast to other capital budgeting analysis methods, the NPV formula utilizes the time value of money; it discounts cash flow and examines profitability depending on the timing of when cash flow occurs. The discount rate used in the NPV method also accounts for the particular cost of capital for the company.
The NPV calculation inherently incorporates long-term exposure to risk because it discounts cash flow. Since these cash flows frequently have the greatest degree of uncertainty, the most distant estimates in the future are discounted most heavily.
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