A Capital Investment That Generates a 10% Rate of Return

question 86

Multiple Choice

A capital investment that generates a 10% rate of return is worthwhile if:

• A) corporate bonds of similar risk offer 8% rates of return.
• B) corporate bonds of similar risk offer 11% rates of return.
• C) top-quality corporate bonds offer 10% rates of return.
• D) the expected rate of return on the stock market is 12%.

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Definitions:

Accounts Payable

Liabilities of a business that represent amounts owed to creditors for goods and services received but not yet paid for.

Accrued Liabilities

Liabilities recognized on the balance sheet before a company receives the related goods or services.

Indirect Method

A cash flow statement preparation approach that adjusts net income for changes in non-cash items to arrive at operating cash flow.

Inventory

Items, such as raw materials, work-in-progress, and finished goods, that a company holds with the intention of selling them.