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:

Forged Cashier's Check

A counterfeit document made to look like a legitimate cashier's check, used in fraudulent transactions.

Innocent Purchaser

An individual who buys property without knowledge of any existing claims, disputes, or defects associated with it.

Fraud

An intentional deception made for personal gain or to damage another individual.

Sale-Or-Return Contract

A contract in which the buyer and seller agree that the buyer may return the goods at a later time.