If the Opportunity Cost of Capital for a Lending Project

question 84

Multiple Choice

If the opportunity cost of capital for a lending project exceeds the project's IRR, then the project has a(n) :

• A) positive NPV.
• B) negative NPV.
• C) acceptable payback period.
• D)positive profitability index.

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Definitions:

Positive Economic Profits

The situation in which a firm's total revenues exceed its total costs, including both explicit and implicit costs, signaling that the firm is doing better than the next best alternative.

Profit

The financial gain realized when the amount earned from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Monopolistically Competitive Firm

A company that operates in a market with many competitors, each offering products that are similar but not identical, allowing for some degree of market power.

Price Higher Than Marginal Cost

A situation where the selling price of a product is set above the marginal cost of production, often leading to increased profitability but potentially distorting market efficiency.