When a Firm Uses the Net Present Value Method for Capital

question 69

Multiple Choice

When a firm uses the net present value method for capital budgeting decisions with a 10% discount rate, what does a negative net present value indicate?

• A)the proposal's rate of return exceeds 10%.
• B)the proposal's rate of return is less than the minimum rate required.
• C)the proposal earns a rate of return between 9% and 10%.
• D)None of the answers are correct.

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Definitions:

Residual Value

The estimated amount that an asset is worth at the end of its useful life.

Annual Depreciation Expense

Annual depreciation expense is the portion of the cost of a fixed asset that is expensed each year over its useful life, reflecting its decrease in value.

Straight-Line Depreciation

A method of allocating the cost of an asset evenly over its useful life, indicating how much of the asset's value has been used up each year.

Accumulated Depreciation Balance

The total amount of depreciation expense that has been recorded against a fixed asset since it was acquired.