The "NPV Criterion" Is That a Firm Should Invest in a New

question 43

Multiple Choice

The "NPV Criterion" is that a firm should invest in a new capital project if:

• A) the present value of the expected future cash flows is larger than the present value of the cost of the investment.
• B) the future value of the expected future cash flows is larger than the cost of the investment.
• C) financing can be secured on the basis of new bonds.
• D) financing can be secured on the basis of new stocks.
• E) financing is not necessary because there are enough liquid assets in the company's portfolio to afford the investment.

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Definitions:

Budget Deficits

The situation where a government's expenditures exceed its revenues in a given fiscal period, leading to borrowing or printing of money.

National Debt

The all-encompassing volume of money borrowed by a nation's government through different strategies.

Recession

A stretch of momentary economic regression, with a downturn in industrial and trade operations, generally pinpointed by a GDP fall in two sequential quarters.

Crowding-Out Effect

A situation where increased government spending leads to a reduction in private sector spending, either because it raises interest rates or because it uses up available financial resources.