Question

Which of the following situations suggests the acceptance of an investment​ proposal? A. The cash inflows are lesser than the initial investment. B. The IRR is lower than the hurdle rate. C. The investment will have a residual value. D. The present value of the net cash inflows exceeds the initial investment.

Answer 1

Hello there!

Your question asks which situation suggests the acceptance of an investment proposal.

Answer: D). The present value of the net cash inflows exceeds the initial investment

The reason why "D). The present value of the net cash inflows exceeds the initial investment" would be  the correct answer is because this would show investors that they should invest in a group or company.

An investment proposal is a way of "motivating" / "attract" / or "persuade" investors to invest in a company. When investors look for businesses to invest in, they want to see that the business will make more than what they invested in. And answer choice "D" clearly shows that.

When it says "The present value of the net cash inflows exceeds the initial investment", it means that the net cash flow that the business is receiving is exceeding, or higher, than the investment that was put, meaning that the people who invested in it will make profit off of the investment. And that's what investors want, profit or a surplus that is higher than the price they've invested for.

I hope this helps!

Best regards,

MasterInvestor