NPV is calculated as ...

NPV is calculated as ...

• A. The sum of all future revenues during the stated period
• B. The sum of all future revenues during the stated period multiplied by an interest rate
• C. The sum of all future revenues during the stated period discounted by an interest rate
• D. The sum of all future revenues during the stated period minus the total project costs

Answer: (C)

Net present value hinges on the time value of money: future cash inflows must be converted to their present value using a discount rate. Each future revenue amount is divided by (1 + r) raised to the power of the time period, then all those present values are summed, and the initial investment is subtracted. This captures what a dollar earned in the future is worth today. Among the options, discounting the future revenues by an interest rate best reflects this idea. The other choices miss the time-value adjustment (undiscounted sums), apply the rate in the wrong way (multiplying rather than discounting), or subtract costs without discounting the inflows, which does not correctly represent NPV.

Net present value hinges on the time value of money: future cash inflows must be converted to their present value using a discount rate. Each future revenue amount is divided by (1 + r) raised to the power of the time period, then all those present values are summed, and the initial investment is subtracted. This captures what a dollar earned in the future is worth today. Among the options, discounting the future revenues by an interest rate best reflects this idea. The other choices miss the time-value adjustment (undiscounted sums), apply the rate in the wrong way (multiplying rather than discounting), or subtract costs without discounting the inflows, which does not correctly represent NPV.