Assume a Project Has Normal Cash Flows

question 54

Multiple Choice

Assume a project has normal cash flows.According to the accept/reject rules,the project should be accepted if the

• A)PI is less than 1.
• B)AAR is less than the required AAR.
• C)IRR exceeds the required return.
• D)payback period is less than the life of the project.
• E)discounted payback period is less than the life of the project.

---

Definitions:

Diminishing Marginal Product

The principle that as more of a variable input is added to a fixed input, the additional output produced from each new unit of input will eventually decrease.

Production Function

A production function describes the relationship between inputs used in production and the output generated from those inputs.

Marginal Product

The additional output gained by adding one more unit of a specific input, keeping all other inputs constant.

Profitability

A measure of the ability of a company or a business sector to generate earnings compared to its expenses and other relevant costs incurred during a specific period of time.