If the Net Present Value of a Proposed Investment Is

question 43

Multiple Choice

If the net present value of a proposed investment is positive,

• A)the cost of the investment is more than the present value of the future cash flows.
• B)the investment does not earn the required rate of return.
• C)the present value of the future cash flows would be unaffected by the proposed investment.
• D)the firm should make the investment because the present value of the future cash flows is more than the cost of the investment.

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Definitions:

Specific Costs

Costs that can be directly attributed to a particular project, department, or activity.

Required Return

The minimum return that keeps an investor in a particular stock. Generally a function of the risk perceived in the investment.

Target Capital Structure

The ideal mix of debt, equity, and other financing sources a company aims to maintain over time.

Invested Funds

Money allocated by individuals or organizations to stocks, bonds, or other investments with the expectation of earning a return.