Including flOtation Costs into the Net Present Value of a Project

question 200

Multiple Choice

Including flotation costs into the net present value of a project will:

• A) Not affect that net present value.
• B) Increase the net present value of the project.
• C) Increase the discount rate applied to the project thereby lowering the project's net present value.
• D) Increase the initial cash outflow of the project thereby lowering the project's net present value.
• E) Affect the net present value but the direction of that impact cannot be determined.

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Definitions:

Operating

Pertaining to the core activities necessary for a business to function, including production, sales, and distribution.

Financing

The process of providing or securing funds for business activities, making purchases, or investing.

Investing

The act of allocating resources, often financial, in hopes of generating an income or profit.

Statement of Cash Flows

A financial statement that summarizes the cash inflows and outflows for a company over a period, showing how changes in balance sheet and income affect cash and cash equivalents.