Joan Osborne Is Evaluating a Potential Capital Investment

question 148

Multiple Choice

Joan Osborne is evaluating a potential capital investment.She has calculated the net present value using a minimum rate of return of 10%.Using this rate,the net present value is negative.What does this tell her about the rate of return expected for the project?

• A) If the net present value is negative, the expected rate of return for the project is greater than the 10% minimum or required rate of return.
• B) If the net present value is negative, the expected rate of return for the project is less than the 10% minimum or required rate of return.
• C) If the net present value is negative, the expected rate of return for the project is equal to the 10% minimum or required rate of return.
• D) None of these answers are correct.

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Definitions:

Deadweight Loss

The inefficiency caused in a market where all potential gains from trade are not realized due to factors like taxes or subsidies.

Per-Unit Tax

A tax imposed on a product on a per unit basis, raising the cost of production or sale for that product.

Marginal Tax Rate

The rate at which the last dollar of income is taxed, reflecting the incremental rate applied to income in the highest tax bracket.

Average Tax Rate

The ratio of the total amount of taxes paid to the total tax base (income, expenditure, or asset), represented as a percentage.