A Project Will Generate $1 Million Net Cash Flow Annually

question 83

Multiple Choice

A project will generate $1 million net cash flow annually in perpetuity.If the project costs $7 million,what is the lowest WACC shown below that will make the NPV negative?

• A) 10%
• B) 12%
• C) 14%
• D) 16%

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Definitions:

Paid-in Capital

The amount of capital provided by shareholders in exchange for shares of stock during the initial offering or through subsequent stock offerings.

Retained Earnings

The portion of a business's profits not distributed to shareholders but instead reinvested in the business or kept as reserve.

Paid-in Capital

The amount of capital "paid in" by investors during common or preferred stock issuances, including the par value of the shares and amounts over par value.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, often with dividends that are paid out before common stock dividends.