Assume You Are Looking at a Graph That Relates the Net

question 76

Multiple Choice

Assume you are looking at a graph that relates the net present value of two mutually exclusive investment projects to various discount rates.Assume the projects have differing cash flows and finite lives.Which one of these statements accurately reflects this graph?

• A)The lines representing the projects will be upward sloping.
• B)If one project has equal cash flows for each year of its life,the line representing that project will be horizontal.
• C)The lines representing the projects will be parallel over multiple discount rates.
• D)The lines representing the projects must cross at a point where the NPV of each project is positive.
• E)The project lines will reflect lower NPV values at higher discount rates.

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Definitions:

Paid-In Capital

Funds that are received by a company from investors in exchange for stock, representing the capital provided by shareholders as a part of the equity of the company.

Cash Dividends

Payments made out of a corporation's earnings to its shareholders in the form of cash.

Treasury Stock

Refers to shares that were previously issued and outstanding but have been bought back by the issuing company, reducing the amount of outstanding stock on the open market.

Stock Split

An action by a company to increase the number of its outstanding shares by issuing more shares to current shareholders, often to make the stock more affordable.