A Firm Should Never Undertake an Investment If the Present

question 164

Multiple Choice

A firm should never undertake an investment if the present value of the

• A) income stream associated with the investment is greater than the full cost of the investment project.
• B) income stream associated with the investment is less than the full cost of the investment project.
• C) income stream associated with the investment is positive.
• D) costs of the investment project are lower than the present value of the returns from the investment project.

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Definitions:

Autonomous Subsidiaries

Subsidiary companies that operate independently with their own management and decision-making processes, despite being owned by a parent company.

Intercompany Transactions

Financial dealings between two or more entities within the same parent company structure.

Integrated Subsidiary

A subsidiary whose operations are closely intertwined with its parent company, sharing resources, processes, and management.

Foreign Exchange Gains

Profits resulting from changes in exchange rates affecting the value of assets, liabilities, or financial transactions denominated in a currency other than the entity's functional currency.