A Firm Should Continue to Invest in Capital Budgeting Projects

question 20

Multiple Choice

A firm should continue to invest in capital budgeting projects until its marginal cost of capital is equal to the:

• A)net present value (NPV) of the last project purchased.
• B)internal rate of return (IRR) of the first project purchased.
• C)marginal return (internal rate of return, IRR) generated by the last project purchased.
• D)combined cost of all of the projects purchased.
• E)weighted average cost of capital for all of the projects purchased.

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Definitions:

Effort-To-Performance

The expectancy that one's investment of effort will lead to a certain level of performance.

Work-Outcome Relationships

The connection between the effort invested in work and the results or rewards derived from that work.

Desirability

The quality of being wanted or wished for as being attractive, useful, or necessary.

Expectancy Theory

A motivational theory suggesting that an individual's effort level is based on the expectation that effort will lead to a desired performance level and reward.