Which of the Following Situations Suggests the Acceptance of an Investment

question 3

Multiple Choice

Which of the following situations suggests the acceptance of an investment proposal?

• A) The present value of the net cash inflows exceeds the initial investment.
• B) The IRR is lower than the hurdle rate.
• C) The cash inflows are less than the initial investment.
• D) The investment will have a residual value.

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Definitions:

Face Value

The nominal value printed on a bond or share, distinct from its market value.

Par Value

The face value of a bond or stock, representing the amount the issuer agrees to pay at maturity (for bonds) or as an arbitrary value assigned to shares.

Debt Relationship

The connection between borrowers and lenders, specifying the terms under which debt capital is lent and must be repaid.

Issuing Company

A company that releases or sells financial instruments like stocks and bonds to raise capital from public or private investors.