An Investment Would Be Considered a Good Prospect Under Which

question 15

Multiple Choice

An investment would be considered a good prospect under which of the following conditions?

• A) The present value of the cash flows exceeds the initial investment.
• B) The IRR is lower than the hurdle rate.
• C) The cash inflows are greater than the initial investment.
• D) It has a residual value.

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Definitions:

Nominal Interest Rates

The rate of interest before adjustment for inflation, representing the face value of borrowing costs or investment returns.

Real Interest Rates

Interest rates adjusted for inflation, showing the real cost of borrowing or real yield of saving.

Real Interest Rate

The interest rate adjusted for inflation, reflecting the real cost of borrowing and the real yield to investors.

Nominal Rate

The interest rate before adjustments for inflation, representing the face value of financial transactions.