Question

The principle that an investment should be accepted if the difference between the investment's market value and its cost is positive and rejected if the difference is negative is referred to as the:

A. Average accounting return rule.
B. Internal rate of return rule.
C. Profitability index rule.
D. Discounted payback rule.
E. Net present value rule.

Answer 1

The principle that an investment should be accepted if the difference between the investment's market value and its cost is positive and rejected if the difference is negative is referred to as the Net Present Value (NPV) rule option (e).

Step-by-step explanation:

The principle that an investment should be accepted if the difference between the investment's market value and its cost is positive and rejected if the difference is negative is referred to as the Net Present Value (NPV) rule. NPV is a financial concept that takes into account the time value of money and calculates the present value of future cash flows.

If the NPV of an investment is positive, it indicates that the investment will generate more value than it costs, making it a good investment. On the other hand, if the NPV is negative, it suggests that the investment will not generate sufficient returns to cover the initial cost, making it a poor investment.