When Richard Evaluated a Capital Budgeting Project⎯a New Machine Needed

question 75

Multiple Choice

When Richard evaluated a capital budgeting project⎯a new machine needed to manufacture inventory⎯using his firm's required rate of return,he discovered that the project's net present value (NPV) is negative.Based on this information,which of the following must be correct?

• A) The project's internal rate of return is also negative.
• B) The project's discounted payback period is greater than its economic life.
• C) As long as the new machine's initial investment outlay is fairly low,the firm should purchase if it is used to replace an older machine that is required to produce inventory.
• D) The project's traditional payback period must be greater than the maximum payback period that the firm has established.
• E) Two or more of these scenarios must be correct.

Understand the basics of creating a portfolio with both risky and risk-free assets.

Calculate the expected return and standard deviation for a given portfolio.

Identify the concept of the capital allocation line (CAL) and its significance.

Understand the differences in risk tolerance among investors and its impact on portfolio selection.

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