Question

A project has a net present value of zero. Which one of the following best describes this project?The project has a zero percent rate of return.The project requires no initial cash investment.The project has no cash flows.The summation of all of the project's cash flows is zero.The project's cash inflows equal its cash outflows in current dollar terms.

Answer 1

The correct answer is that the project’s cash inflows equal its cash outflows in current dollar terms.

Net Present Value is the present value of future revenues minus the present value of future costs. The term is a measure of profit in relation to the discount rate. A zero NPV means that the investment is expected to earn a rate of return equal to the discount rate.