A Company Faces a Hurdle Rate of 12

question 13

Multiple Choice

A company faces a hurdle rate of 12%. It has three possible outcomes to an investment opportunity: a realistic NPV of $17,500, an optimistic NPV of $21,300 and a pessimistic NPV of $4,530. The probabilities associated with the outcomes are 55%, 22% and 23%. What is the company's ENPV?

• A) $13,071
• B) $13,708
• C) $14,443
• D) $14,879
• E) $15,353

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Definitions:

Treasury

The department within a government or corporation responsible for managing monetary assets and debt obligations.

Preferred Stock

A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock, often with predetermined dividend payments.

Cumulative

Describing something that increases or accumulates over time, often used in reference to dividends or data.

Par Value

A nominal or face value assigned to securities, such as stock, which has no direct relation to their market value.