Joan Osborne Is Evaluating a Potential Capital Investment

question 45

Multiple Choice

Joan Osborne is evaluating a potential capital investment.She has calculated the net present value using a minimum rate of return of 10%.Using this rate,the net present value is negative.What does this tell her about the rate of return expected for the project?

• A) If the net present value is negative;the expected rate of return for the project is greater than the 10% minimum or required rate of return.
• B) If the net present value is negative;the expected rate of return for the project is less than the 10% minimum or required rate of return.
• C) If the net present value is negative;the expected rate of return for the project is equal to the 10% minimum or required rate of return.
• D) None of the other answers are correct.

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Definitions:

Entity Theory

A concept in accounting that treats a business as separate from its owners or other businesses, supporting the preparation of separate financial statements.

Consolidated Net Income

The total net income of a parent company and its subsidiaries after eliminating intercompany transactions, presented in a consolidated financial statement.

Non-Controlling Interest

The portion of equity in a subsidiary not attributable, directly or indirectly, to a parent company.

Intercompany Profits

Profits that arise from transactions between companies under the same parent company, usually eliminated during consolidation of financial statements.