Each Project Should Be Judged Against

question 122

Multiple Choice

Each project should be judged against:

• A) the specific means of financing used to support its implementation.
• B) the going interest rate at that point in time.
• C) the cost of new common stock equity.
• D) the risk and return to the shareholder.

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Definitions:

Crossover Rate

The point at which two or more investment projects have the same net present value or rate of return, used in capital budgeting to compare projects.

Mutually Exclusive

Refers to a situation where the selection of one alternative prevents the selection of any other alternative.

Required Rate

The minimum return an investor expects to achieve on an investment, taking into account its risk.

Average Accounting Rate of Return

A financial ratio indicating the expected return on an investment, calculated by dividing the average profit by the initial investment cost.