A 15% Internal Rate of Return (IRR) on a Proposed

question 121

Multiple Choice

A 15% internal rate of return (IRR) on a proposed capital investment indicates all of the following except:

• A) The economic rate of return on the project is expected to be 15%.
• B) Use of a 15% discount rate would result in an estimated project NPV of zero.
• C) An acceptable capital project if the cost of capital is 16 percent or higher.
• D) A positive net present value (NPV) if the cost of capital is less than 15%.
• E) An acceptable project, in a present value sense, if the discount rate is less than 15%.

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Definitions:

Stockholders' Equity

The residual interest in the assets of a corporation that remains after deducting liabilities, representing the ownership interest.

Cumulative

Describes items that are totalled up over a period of time, such as dividends that accumulate if not paid out.

Common Stockholders

Individuals or entities that own shares in a corporation, representing claims on the company's assets and earnings.

Preferred Stock

A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock, often with fixed dividends.