If a Project's Expected Rate of Return Exceeds Its Opportunity

question 21

Multiple Choice

If a project's expected rate of return exceeds its opportunity cost of capital, one would expect:

• A) the profitability index to exceed 1.0.
• B) the opportunity cost of capital to be too low.
• C) the IRR to exceed the opportunity cost of capital.
• D)the NPV to be zero.

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Definitions:

Actual Reserves

The total amount of funds that a bank has in its vault or deposited with the central bank, available to meet withdrawal demands or regulatory requirements.

Federal Reserve Banks

The regional banks of the Federal Reserve System, the central bank of the United States, which regulate and serve banks, execute monetary policy, and provide financial services.

Privately Owned

Businesses or properties owned by individuals or corporations rather than by the government or public entities.

Publicly Controlled

Operations or organizations that are owned, operated, or regulated by the government or public authorities.