Answer (A) is correct . The NPV method computes the present value of future cash inflows to determine whether they are greater than the initial cash outflow. Future cash inflows include any salvage value on facilities. Included in the initial investment are the cost of new equipment and other facilities, and additional working capital needed for operations during the term of the project. The discount rate (cost of capital or hurdle rate) must be known to discount the future cash inflows. If the NPV is positive, the project should be accepted. The method of funding a project is a decision separate from that of whether to invest.
Answer (B) is incorrect because The initial costs of the project are necessary to determine the NPV.
Answer (C) is incorrect because Additional working capital needs are necessary to determine the NPV.
Answer (D) is incorrect because The project’s salvage value is a future cash inflow to be discounted.
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