What Decision Should Be Made on a Project of Above-Average

question 31

Multiple Choice

What decision should be made on a project of above-average risk if the project's IRR exceeds the WACC?

• A) Accept the project; NPV is positive
• B) Reject the project; NPV is negative
• C) Decide after discounting at the IRR
• D)Decide after discounting at an appropriate rate

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Definitions:

Return on Investment

A financial ratio that calculates the profitability of an investment by dividing the net profit by the initial cost of the investment.

Controllable Margin

The portion of profit or income that a manager can directly influence by controlling costs or increasing sales.

Invested Capital

Funds invested in a company by the shareholders and lenders, used for the purchase of assets and operation of the company, aiming for business growth and profitability.

Expansion Alternatives

Various strategies or methods a company may consider to grow its business operations, such as opening new locations, product diversification, or acquisitions.