Jason,the Regional Manager for a Large Electronics Firm,is Trying to Determine

question 34

Multiple Choice

Jason,the regional manager for a large electronics firm,is trying to determine whether a new warehouse is a good investment.After working with his firm's financial managers,he concludes that the project carries a negative net present value.What should Jason do-and why?

• A)Not invest in the warehouse-a negative NPV means the firm doesn't have enough money to afford the investment.
• B)Invest in the warehouse-a negative NPV means that the cost of financing the warehouse is less than the cost of any other investment.
• C)Not invest in the warehouse-a negative NPV means that the present value of the positive cash flows are not high enough to justify the costs of the warehouse.
• D)Invest in the warehouse-a negative NPV indicates that failing to do so will reduce the value of the firm to its shareholders.

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Definitions:

Annual Payments

Recurring payments made once a year, such as dividends on stocks or interest on a loan.

Adjustable Rate Mortgages

Home loans with interest rates that can change over time, typically in relation to an index or a predefined benchmark.

Residential Housing

Properties used specifically for dwelling purposes, including houses, apartments, and townhomes.

Mortgage Payments

These are regular payments made by a borrower to a lender, typically consisting of both principal and interest, for the loan used to purchase property.