Ashton Is Working on a Project at PowerTek Inc

question 76

Multiple Choice

Ashton is working on a project at PowerTek Inc., a well-known multinational corporation. He uses capital budgeting to estimate the project's future cash flows. He finds that the present value of the estimated future cash flows is greater than the cost of the project. How likely is he to gain approval from the board?

• A) He will quite certainly gain approval since the project has a positive net present value.
• B) Approval is probable but not likely as he failed to account for the time value of money.
• C) He will not gain approval as he failed to consider whether the project is leading edge or not.
• D) Approval is probable but not likely as the project has been constructed on estimates instead of facts.

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Definitions:

Annual Dividend

The annual dividend is the total amount of dividends that a company pays to its shareholders in one fiscal year.

Indefinitely

For an unlimited or unspecified period of time, often used in the context of contracts or agreements.

Rate of Return

The increase or decrease in the value of an investment during a set timeframe, represented as a proportion of the investment's initial expense.

Dividends

Payments made by a corporation to its shareholder members, representing a distribution of the company's profits.