The Decision Rule for Net Present Value Calculations Is

question 9

Multiple Choice

The decision rule for net present value calculations is:

• A)to invest if the NPV is above a hurdle level.
• B)to invest in projects with the lowest discount rate.
• C)to invest in projects with the highest discount rate.
• D)to invest if the NPV is positive.

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Definitions:

External Financing Needed

The additional funds a company requires from external sources to finance its planned activities or growth when internal cash flows are insufficient.

Profit Margin

A measure of profitability calculated as net income divided by revenues, expressed as a percentage.

Capital Intensity Ratio

A metric that measures the amount of assets required to generate one dollar of revenue; the higher the ratio, the more capital-intensive the business.

Dividend Payout Ratio

The fraction of net earnings a firm pays to its shareholders as dividends, expressed as a percentage of the company’s total net income.