A Firm Is Evaluating a Project That Has a Net

question 4

Multiple Choice

A firm is evaluating a project that has a net present value of £0 when a discount rate of 8 per cent is used. A discount rate of 10 per cent will result in

• A)a negative net present value.
• B)a positive net present value.
• C)a net present value of £0.
• D)The question cannot be answered based upon the information provided.

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Definitions:

Equity Entries

Accounting transactions that affect the owners' equity account in a company's balance sheet, such as issuing stock or paying dividends.

Parent Entities

Companies that own more than half of the voting rights of another company or have control over it, making the other company a subsidiary.

Goodwill

An intangible asset that represents the excess value of a company over the fair value of its identifiable assets and liabilities, often arising from acquisitions.

Impairment

A decrease in the recoverable value of an asset to below its carrying amount on the balance sheet, leading to a written down value.