Assuming That a Firm Has No Capital Rationing Constraint and That

question 58

Multiple Choice

Assuming that a firm has no capital rationing constraint and that a firm's investment alternatives are not mutually exclusive, the firm should accept all investment proposals

• A) for which it can obtain financing.
• B) that have a positive net present value.
• C) that have positive cash flows.
• D) that provide returns greater than the after-tax cost of debt.

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Definitions:

Required Rate

The minimum return an investor expects to achieve on an investment to compensate for its risk.

Net Present Value

A financial metric that calculates the value of projected future cash flows, discounted back to their present value.

Funds

Financial resources that are saved or obtained for a specific purpose or project, often pooled together from multiple sources.

Discount Rate

The interest rate charged to commercial banks and other financial institutions for the loans they take from the central bank or the rate used in discounted cash flow analysis to determine the present value of future cash flows.