312.2
2. Why do we accept a project when it has a
positive NPV? (1.5 pts)
A positive NPV means that the present value of all of the cash inflows (benefits) of the project is larger than the present value of all of the cash outflows (costs) of the project. By putting both the costs and benefits in present value terms, we are able to directly compare them. When the PV of the inflows is larger than the PV of the costs, the project has a net positive impact on the value of the company. In fact, the value of the company will increase by the amount of the NPV.