Explanation

An increase in initial investment decreases NPV.

As it reduces the present value of the project's cash flows.

This is because the higher initial investment reduces the net benefit of the project.

Explanation

NPV is a time value of money technique that evaluates future cash flows in today's dollars.

This making it a key metric for assessing profitability.

It is also a profitability index.

Explanation

The real interest rate is the interest rate adjusted for inflation.

It representing the actual purchasing power of the interest earned.

Rather than just the nominal value.

Explanation

Nominal interest rate: Annual rate without compounding.

It representing yearly interest paid or earned.

It is also known as the annual percentage rate (APR).

Explanation

When the interest rate increases, the future value of an investment also increases.

As the higher interest rate earns more interest over time.

It resulting in a higher total value.

Explanation

A higher NPV indicates higher expected profitability.

It means the investment is expected to generate more value and returns.

It suggests that the investment is likely to be more profitable and should be accepted.

Explanation

A critical assumption in NPV calculation is that cash flows occur at the end of each period.

This timing assumption is essential for accurately discounting future cash flows to their present value.

Explanation

The primary goal of using NPV is to maximize shareholder value.

By selecting projects that add value to the firm.

This evaluating if returns exceed costs.

Explanation

NPV equal to initial investment means breakeven point.

It expected returns equal costs, neither profitable nor loss-making.

It indicating a marginal project that may not be worth pursuing.

Explanation

NPV is used primarily in the field of finance.

NPV is a finance tool that calculates the present value of future cash flows to determine the value of an investment.