What does a positive NPV indicate about an investment?

A positive Net Present Value (NPV) indicates that the present value of an investment's cash inflows exceeds the present value of its cash outflows. This means that the investment is expected to generate a return that is greater than the required rate of return. Essentially, a positive NPV signals that the investment is likely to add value to the investor's portfolio and contribute positively to their financial goals.

When evaluating investments, an NPV greater than zero suggests that the projected earnings (discounted to present value) will surpass the costs involved in making the investment, thus making it a favorable opportunity. This is significant for investors as it provides a clear indication that the asset will yield a return stronger than what they would need to justify the risk of the investment.

Options that suggest the investment will yield less than the required rate of return or that an investor should not proceed with the acquisition do not accurately reflect what a positive NPV signals. Moreover, the idea that a positive NPV means the investment will merely break even is misleading; a positive NPV clearly indicates profitability and value creation above the minimum threshold set by the required rate of return.