What is the present value of the cash flows compared to your initial investment?

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Multiple Choice

What is the present value of the cash flows compared to your initial investment?

This question is about evaluating profitability by bringing future cash flows back to their value today and comparing that to what you initially invested. That comparison is Net Present Worth, also called Net Present Value. You discount each expected cash flow to time zero using a chosen rate, add them up, and then subtract the initial outlay. If the result is positive, the project creates value; if zero, it’s break-even in present-value terms; if negative, it reduces value. The other terms are different ideas: Equivalent Annual Cost or Benefit annualizes the NPV to compare projects with different lifespans; Rate of Return (or IRR) is the discount rate that makes NPV zero; Deflation is unrelated.

This question is about evaluating profitability by bringing future cash flows back to their value today and comparing that to what you initially invested. That comparison is Net Present Worth, also called Net Present Value. You discount each expected cash flow to time zero using a chosen rate, add them up, and then subtract the initial outlay. If the result is positive, the project creates value; if zero, it’s break-even in present-value terms; if negative, it reduces value. The other terms are different ideas: Equivalent Annual Cost or Benefit annualizes the NPV to compare projects with different lifespans; Rate of Return (or IRR) is the discount rate that makes NPV zero; Deflation is unrelated.

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