QTB – May 2015 – L1 – SA – Q4 – Operations Research

Understanding when a business venture is considered worthwhile.

Question

A business venture is considered as worthwhile when the:

A. Present value of revenue is positive
B. Present value of the cost is positive
C. Net present value is positive
D. Net present value is equal to zero
E. Internal rate of return is positive

Answer

Answer:
C. Net present value is positive

Explanation:
A business venture is deemed worthwhile when the net present value (NPV) is positive. NPV is the difference between the present value of inflows and outflows. When it is positive, the project is expected to generate more value than its cost, indicating profitability.

Tags: Internal Rate of Return, Net Present Value, Present Value
Level: Level 1

Topic: Operations Research
Series: MAY 2015

Uploader: Kwame Aikins