Suppose a Project Requires an Initial Investment of $1,000 and It

question 3

Multiple Choice

Suppose a project requires an initial investment of $1,000 and it will yield $1,050 one year later.The NPV of the project is:

• A)Equal to $50
• B)less than 0 if the discount rate is less than 5 percent
• C)Zero if the discount rate is equal to 5 percent
• D)Positive if the discount rate is greater than 5 percent

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Definitions:

ROE

Return on Equity is an indicator of a company's profitability, demonstrating the amount of profit generated from the shareholders' investments.

ROA

Return on Assets, a financial ratio indicating the profitability of a company relative to its total assets, measuring how effectively the company is using its assets to generate earnings.

Debt-Equity Ratio

The indicator displaying the equivalent contribution of equity and debt to a company's asset base financing.

Sustainable Growth Rate

The maximum rate at which a company can grow its revenues and profits without needing to increase financial leverage.