Your Firm Is Evaluating a Potential Investment in New Machinery

question 13

Multiple Choice

Your firm is evaluating a potential investment in new machinery, but the manager in charge of the project uses an opportunity cost of capital that is too large. How does this error affect the projected net present value of the firm's investment?

• A) NPV is overstated.
• B) NPV is understated.
• C) NPV is unaffected.
• D) NPV changes from positive to negative.

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Definitions:

Ombudsperson

A designated individual from whom employees may seek counsel for resolution of their complaints.

Negotiation

The process of discussing and reaching an agreement between two or more parties, each with its own interests and objectives.

Mediation

A confidential and voluntary process involving a neutral third party to help resolve disputes or conflicts.

Wrongful Dismissal

A lawsuit filed in a court by an employee alleging that he or she was dismissed without proper contractual or “reasonable” notice.