Which of the Following Statements Is Most Likely to Be

question 7

Multiple Choice

Which of the following statements is most likely to be correct for a project in which the NPV is negative when based on the inflows from net income?

• A)NPV may turn positive after adjusting for depreciation expense.
• B)NPV should be calculated with pretax cash flows.
• C)NPV has probably been overestimated.
• D)The project should be rejected or abandoned.

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Definitions:

Equipment Undervalued

Situations in which equipment's book value on financial statements is less than its current market value or replacement cost.

Partial Equity Method

An accounting approach where an investor recognizes a proportionate share of investee profits, but not as comprehensively as under the full equity method.

Noncontrolling Interest

A portion of equity in a subsidiary not attributed to the parent company, representing the minority shareholders' share of the assets and earnings.

Net Income

A company's total earnings or profit, calculated as revenues minus expenses, taxes, and the cost of goods sold.