Which of the Following Statements Is Correct for a Project

question 51

Multiple Choice

Which of the following statements is correct for a project with a positive NPV?

• A) The IRR must be greater than 0.
• B) Accepting the project has an indeterminate effect on shareholders.
• C) The discount rate exceeds the cost of capital.
• D) The profitability index equals 1.

Comprehend the importance and computation of the cost of preferred stock.

Understand the impact of corporate tax rates on WACC and individual cost components.

Know how to identify the appropriate cost of debt for WACC calculations.

Learn the relevance of weighted average flotation costs in investment decisions.

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Definitions:

Fixed Overhead Volume Variance

The difference between the budgeted and actual quantity of units produced, multiplied by the fixed overhead rate per unit.

Unfavorable

A term used to describe variances or differences that negatively impact profitability or efficiency, often indicating higher costs or lower revenue than expected.

Favorable

A term used in accounting and finance to describe situations where actual costs are less than budgeted or expected costs, or revenue is higher than anticipated.

Manufacturing Overhead Volume Variance

The difference between the budgeted volume of manufacturing overhead and the actual volume incurred, used for budgeting and cost control.