The 'Business Judgement Rule' Is Recognition of the Fact That

question 3

Multiple Choice

The 'business judgement rule' is recognition of the fact that:

• A)the Courts hold directors to an extraordinarily high standard of care.
• B)not every decision that causes loss or harm to a company amounts to a breach of duty by a director.
• C)when a director's act causes loss or harm to a company that director will generally be in breach of their duty to the company.
• D)third parties can assume that directors acting on behalf of the company are acting in accordance with the rules of its constitution.

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Definitions:

NPV

Net Present Value; a calculation used to determine the value of an investment by subtracting the present values of cash outflows (including initial cost) from the present values of cash inflows over a period of time.

IRR

Internal Rate of Return; the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Cost of Capital

The required return necessary to make a capital budgeting project, such as building a new plant, worthwhile.

Capital Rationing

In capital budgeting, the process of allocating available capital among projects to maximize total NPV.