When a Capital Budgeting Project Generates a Positive Net Present

question 1

Multiple Choice

When a capital budgeting project generates a positive net present value, this means that the project earns a return higher than the

• A) internal rate of return.
• B) annual rate of return.
• C) required rate of return.
• D) profitability index.

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Definitions:

Monthly Interest Rate

The interest rate applied each month on a loan or investment, often derived from the annual interest rate divided by twelve months.

Variable Cost

A variable cost is an expense that varies depending on a company's production volume; they rise as production increases and fall as production decreases.

NPV

An alternate expression for Net Present Value, it represents the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Credit Policy

A set of guidelines a company follows to determine the creditworthiness of its customers and the terms of credit it will offer.