Which of the Following Would Be the Best Basis on Which

question 118

Multiple Choice

Which of the following would be the best basis on which to accept an investment opportunity?

• A) If it has positive net cash flows
• B) If it has a payback period in less than 10 years
• C) If the investment's rate of return is higher than the company's current year rate of return
• D) If the net present value of all cash flows is positive

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Definitions:

European Put

A type of option contract that gives the holder the right, but not the obligation, to sell an underlying asset at a specified price on or before a specific date.

European Call

An option contract giving the holder the right, but not the obligation, to buy a specified asset at a predetermined price on or before a specific expiration date, only exercisable on the expiration date.

Net Profit

The amount of income that remains after subtracting all expenses, taxes, and costs from total revenue.

Convertible Bond

A type of bond that can be converted into a predetermined number of the issuer’s equity shares at certain times during its life.