In a cash flow diagram, the sign convention for positive values commonly indicates which of the following?

• A. Cash inflows
• B. Cash outflows
• C. The sign convention can assign either positive or negative depending on perspective
• D. Interest payments only

Answer: (C)

In a cash flow diagram, the sign of a cash flow is a bookkeeping choice tied to perspective. You pick a reference (what counts as the starting point) and decide whether money entering the project is positive or negative. Because different problems use different viewpoints, the same cash flow can be shown as positive in one diagram and negative in another. That’s why the best answer is that the sign convention can assign either positive or negative depending on perspective. For example, from a project-owner viewpoint, inflows like revenues or salvage value are often treated as positive and outflows like the initial investment or operating costs as negative. If you shift the perspective or adopt the opposite convention for costs, the signs flip accordingly. The key is consistency in applying the chosen sign convention when summing cash flows for metrics like net cash flow or NPV.