When Richard Evaluated a Capital Budgeting Project⎯a New Machine Needed

question 75

Multiple Choice

When Richard evaluated a capital budgeting project⎯a new machine needed to manufacture inventory⎯using his firm's required rate of return,he discovered that the project's net present value (NPV) is negative.Based on this information,which of the following must be correct?

• A) The project's internal rate of return is also negative.
• B) The project's discounted payback period is greater than its economic life.
• C) As long as the new machine's initial investment outlay is fairly low,the firm should purchase if it is used to replace an older machine that is required to produce inventory.
• D) The project's traditional payback period must be greater than the maximum payback period that the firm has established.
• E) Two or more of these scenarios must be correct.

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Definitions:

Median

The middle value in a dataset when it is ordered from smallest to largest, or the mean of the two middle values if the dataset has an even number of observations.

Distribution Shape

Refers to the geometric arrangement of data points in a distribution, common shapes include normal, skewed, or bimodal distributions.

Mean Number

The arithmetic average of a set of values, calculated by dividing the sum of all values by the number of values.

Median Salary

The middle value of salaries when they are arranged in ascending or descending order, effectively dividing the data set into two equal halves.