​If the Net Present Value (NPV) of an investment proposal is positive, what conclusions can be drawn?
A. The investment generated present value of cashflows exceed cost of investment
B. The discount rate used is less than the investment's estimated return
C. The discount rate used equals the minimum return required by the investors
D. The investment generated present value of cashflows equals the cost of investment
E. The investment's Internal Rate of Return (IRR) exceeds the Cost of Capital
Choose the correct answer from the options given below:​

Correct option is D

When the Net Present Value (NPV) of an investment is positive, it means:

• A: The present value of future cash inflows exceeds the initial cost of investment. This is the fundamental definition of positive NPV.

• B: The discount rate used in the NPV calculation is less than the investment’s expected rate of return, which leads to a positive NPV. If the discount rate were higher or equal, NPV would be zero or negative.

• E: Since NPV is positive, it implies the Internal Rate of Return (IRR), which is the rate at which NPV equals zero, exceeds the cost of capital (the discount rate). This means the investment is expected to generate returns above the minimum required by investors.

Information Booster:

• NPV (Net Present Value) represents the difference between the present value of cash inflows and outflows using a discount rate (usually the cost of capital).

• A positive NPV indicates a value-adding investment and typically suggests acceptance of the project.

• Discount rate reflects the opportunity cost of capital or minimum required rate of return for investors.

• The IRR (Internal Rate of Return) is the discount rate that makes NPV = 0. If IRR > cost of capital, NPV is positive.

• NPV helps in capital budgeting decisions to maximize shareholder wealth.

• A negative NPV means the project’s returns don’t cover the cost, so it’s rejected.

• NPV accounts for the time value of money and risk via discounting future cash flows.

Additional Knowledge:

C. The discount rate used equals the minimum return required by the investors: This condition results in NPV = 0, not positive. So, it cannot be concluded if NPV is positive.

D. The investment generated present value of cashflows equals the cost of investment: This again means NPV is zero, which contradicts the given condition of positive NPV.