If a Project's Expected Rate of Return Exceeds Its Opportunity

question 27

Multiple Choice

If a Project's expected rate of return exceeds its opportunity cost of capital, one would expect:

• A)The profitability index to exceed 1.0
• B)The opportunity cost of capital to be too low
• C)The IRR to exceed the opportunity cost of capital
• D)The NPV to be zero

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Definitions:

Price Effect

The impact on the market or consumers' purchasing behavior due to a change in the price of a good or service.

Megawatts

A unit of power equal to one million watts, often used to quantify the output of large power plants or the electricity consumption of large entities.

Natural Monopoly

A market situation where a single firm can supply the entire market more efficiently than multiple firms due to high fixed or start-up costs.

Producing Electricity

The process of generating electric power from sources of primary energy such as coal, natural gas, nuclear, solar, or wind energy.