Exam 712-50 topic 1 question 350 discussion

B is correct

The net present value (NPV) is calculated by subtracting the initial investment from the present value of the projected future cash flows. So, the correct answer is: D. Initial investment – Future value Explanation: Net Present Value (NPV): NPV is a financial metric used to evaluate the profitability of a project. It represents the difference between the present value of cash inflows and the present value of cash outflows over the project's duration. A positive NPV indicates that the projected earnings (in present dollars) exceed the initial investment, making the project financially viable. Why Not the Other Options? A. Net profit – per capita income: This formula is not related to the calculation of NPV. B. Total investment – Discounted cash: This is close but not accurately phrased. The correct concept involves subtracting the initial investment from the discounted value of future cash inflows. C. Average profit – Annual investment: This formula is also not related to NPV calculation.

NPV, or net present value, is how much an investment is worth throughout its lifetime, discounted to today's value

The net present value (NPV) is equal to option B: Total investment - Discounted cash.