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:

Common Stock Dividend

A portion of a company's earnings distributed to common shareholders, typically in the form of cash or additional shares.

Retained Earnings

The portion of a company's profit that is held or retained and saved for future use, reinvestment in the business, or to pay debt, rather than being paid out as dividends.

Additional Paid-In Capital

The excess amount paid by investors over the par value of shares, reflecting the additional capital contributed to a corporation.

Accumulated Comprehensive Income

The total of all net income and other comprehensive income items that have been accumulated over the life of a company.