Question

If a project is acceptable using the net present value criteria, then it

Group of answer choices

will also be acceptable under the more stringent criteria of the payback period.

will also be acceptable under the less stringent criteria of the payback period.

may or may not be acceptable under the payback period.

will never be acceptable under the payback period.

Answer 1

NPV = -initial investment + PV of future cash flows

Present value = Future value/(1+i)^n

i = interest rate per period

n= number of periods

payback period is time taken to recover initial investment

NPV can be high and majority of cash flows can be towards the end of the project, which will increase the payback period

hence may or may not be acceptable under the payback period.