The First or Basic Principle of Finance Dictates That an Individual

question 9

Multiple Choice

The first or basic principle of finance dictates that an individual will invest in a project if:

• A) they are made better off in the financial markets.
• B) they are unable to adjust their savings and consumption in the financial markets.
• C) the project is at least as desirable as what is available in the financial markets.
• D) the interest rate for borrowing and lending is not equal.

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Definitions:

Initial Investment

The initial amount of money spent to start a project or investment, often used as a baseline for calculating future returns.

Net Present Value

A calculation used to assess the profitability of an investment, considering the present value of its cash inflows and outflows over time.

Discount Rate

It refers to the discount rate applied in discounted cash flow analysis to calculate the current value of future cash flows.

Investment in Equipment

Capital expenditure on physical assets like machinery and equipment intended to be used in the production of goods or services.