Jessie, the Regional Manager of a Large Electronics Firm, Is

question 7

Multiple Choice

Jessie, the regional manager of a large electronics firm, is trying to determine whether a new warehouse is a good investment. After discussing with her firm's financial managers, she concludes that the project carries a negative NPV (Net Present Value) . What should Jessie do and why?

• A)She should invest in the warehouse to increase profits since a negative NPV indicates that the firm needs to generate more funds to stay afloat.
• B)She should not invest in the warehouse since a negative NPV means that the present value of the future cash flows does not justify the cost of the warehouse.
• C)She should invest in the warehouse since a negative NPV means that the cost of financing the warehouse is within the company's budget for expenses.
• D)She should not invest in the warehouse since a negative NPV means that the firm cannot afford the investment.

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Definitions:

Rate Of Return

A financial ratio used to calculate the gain or loss of an investment over a specified period, expressed as a percentage of the investment's initial cost.

Useful Life

The estimated duration an asset is expected to be functional and economically useful for its intended purpose.

Residual Value

The anticipated worth of an asset at the conclusion of its lifespan, once depreciation has been accounted for.

Useful Life

The estimated period over which a fixed asset is expected to be useful for the purpose it was acquired by a company.