Which of the Following Statements Is True When a Project's

question 69

Multiple Choice

Which of the following statements is true when a project's discounted payback is less than its useful life?

• A) The terminal value of the future cash flows that the project is expected to generate is less than the future value of the initial cost of the asset.
• B) The future cash flows that the project is expected to generate are less than the initial cost of the asset.
• C) The present value of the future cash flows that the project is expected to generate exceeds the initial cost of the asset.
• D) The future value of the cash flows from the resale of the asset acquired for the project is expected to exceed the initial cost of the asset.
• E) The cost recovery from the project is expected to exceed the maximum cost-recovery time established by the firm.

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Definitions:

Economic Profits

The difference between total revenue and total costs, including both explicit and implicit costs, representing the additional amount earned beyond the next best alternative.

Economies of Scale

Cost advantages that a business can achieve by increasing the scale of production, leading to a lower cost per unit of output.

Economic Profit

The difference between a firm’s total revenue and its total costs, including both explicit and implicit costs.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision or choice.