An Analysis of a Proposal by the Net Present Value

question 78

Multiple Choice

An analysis of a proposal by the net present value method indicated that the present value exceeded the amount to be invested.Which of the following statements best describes the results of this analysis?

• A)The proposal is desirable and the rate of return expected from the proposal exceeds the minimum rate used for the analysis.
• B)The proposal is desirable and the rate of return expected from the proposal is less than the minimum rate used for the analysis.
• C)The proposal is undesirable and the rate of return expected from the proposal is less than the minimum rate used for the analysis.
• D)The proposal is undesirable and the rate of return expected from the proposal exceeds the minimum rate used for the analysis.

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Definitions:

Operating Capacity

The maximum output or the level of service that a company can achieve with its current resources under normal conditions.

Dividend Payout Ratio

A financial metric that shows what percentage of a company's earnings are distributed to shareholders as dividends.

Additional Debt

Borrowing more funds in addition to existing debt, which can increase a company's leverage and financial risk.

Operating Capacity

The maximum output that a company can produce under normal conditions within a given period using its existing resources.