A Proposed Project Has a Positive NPV When Evaluated at the Company

question 96

Multiple Choice

A proposed project has a positive NPV when evaluated at the company cost of capital.If the firm employs debt in its capital structure, will the project remain acceptable after evaluation with the WACC?

• A)Yes, using the WACC will increase the NPV.
• B)No, using the WACC will decrease the NPV.
• C)the project may now become unacceptable.
• D)there will be no change in the project's NPV.

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Definitions:

Binomial Distribution

A probability distribution that summarizes the likelihood that a variable will take one of two independent values under a given set of parameters or assumptions.

Normal Distribution

A continuous probability distribution characterized by a symmetric bell-shaped curve, where most observations cluster around the central peak and probabilities for values further away from the mean taper off equally in both directions.

Right-Skewed

Describes a distribution of data where the tail on the right side of the histogram is longer or extends further than the tail on the left side, indicating that the median is less than the mean.

Standard Deviation

A metric that calculates the spread or variability of a dataset in comparison to its average, showing the extent to which the data points deviate.