Should a Project Be Accepted If It Offers an Annual

question 112

Multiple Choice

Should a project be accepted if it offers an annual after-tax cash flow of $1,250,000 indefinitely, costs $10 million, is riskier than the firm's average projects, and the firm uses a 12.5% WACC?

• A)Yes, since NPV is positive
• B)Yes, since a zero NPV indicates marginal acceptability
• C)No, since NPV is zero
• D)No, since NPV is negative NPV = -10 million + $1.25 million/.125
• = -10 + 10
• = 0

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Definitions:

Pull Strategy

A marketing approach that aims to create demand for a product or service among consumers, encouraging them to request the product from retailers, who then order it from the supplier.

Speculation

The act of trading in an asset, or conducting a financial transaction, that has a significant risk of losing most or all of the initial outlay, in the expectation of a substantial gain.

Customization

The process of modifying a product or service to meet individual customers’ preferences or specific requirements.

Pull Strategy

A marketing approach that aims to create demand for a product or service and entice customers to actively seek it out, often through promotions and awareness campaigns.