If the Cash Flows of an Accepted Investment Project Are

question 61

True/False

If the cash flows of an accepted investment project are negatively correlated with the average cash flow of the firm's existing assets,then the company's total exposure to risk can decrease.

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Definitions:

Residual Income

Income that remains after subtracting all the cost of capital from the net operating profit.

Investment Opportunity

Any vehicle through which funds can be invested to potentially earn a return, such as stocks, bonds, real estate, or a business venture.

Minimum Required Rate

Often refers to the minimum rate of return that an investment must offer to be considered viable or the minimum acceptable compensation for delay or risk.

Revenue Variance

The difference between how much the revenue should have been, given the actual level of activity, and the actual revenue for the period. A favorable (unfavorable) revenue variance occurs because the revenue is higher (lower) than expected, given the actual level of activity for the period.