When the Present Value of the Cash Inflows Exceeds the Initial

question 306

Multiple Choice

When the present value of the cash inflows exceeds the initial cost of a project, then the project should be:

• A) Accepted because the internal rate of return is positive.
• B) Accepted because the profitability index is greater than 1.
• C) Accepted because the profitability index is negative.
• D) Rejected because the internal rate of return is negative.
• E) Rejected because the net present value is negative.

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Definitions:

Seafloor Spreading

A geological process in which new oceanic crust is formed at mid-ocean ridges and slowly moves away from the ridge.

Continental Hot Spot

A volcanic region thought to be fed by underlying mantle that is anomalously hot compared with the surrounding mantle, found in the interior of continental plates.

Yellowstone National Park

A national park primarily located in Wyoming, USA, known for its wildlife and its many geothermal features, especially Old Faithful geyser.

Afar Region

A geologically active area located in the Horn of Africa, known for its unique geological features including the Afar Triangle and part of the Great Rift Valley.