A Division Manager Is Considering a Project That Requires a Significant

question 87

Multiple Choice

A division manager is considering a project that requires a significant initial investment. If accepted, the project could have a negative impact on certain financial ratios that the company is required to maintain to satisfy bond contracts. The manager wants to ensure that the ratios will NOT be adversely affected by the investment. Which capital investment model should the manager use?

• A) the payback period
• B) the net present value
• C) the internal rate of return
• D) the accounting rate of return

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Definitions:

Management

The process of dealing with or controlling things or people, often in the context of running a business, organization, or project.

Secondary Market

A market where investors purchase securities or assets from other investors, rather than from issuing companies directly.

Original Issuance

The first time that securities, such as stocks or bonds, are offered for sale to the public or private investors.

Securities

Financial instruments that represent ownership positions in corporations, creditor relationships with corporations or governmental bodies, or rights to ownership as represented by an option.