Which of the Following Statements Is FALSE

question 108

Multiple Choice

Which of the following statements is FALSE?

• A) The break-even level of an input is the level for which the investment has an internal rate of return (IRR) of zero.
• B) The most difficult part of capital budgeting is deciding how to estimate the cash flows and the cost of capital.
• C) When evaluating a capital budgeting project, financial managers should make the decision that maximizes net present value (NPV).
• D) Sensitivity analysis reveals those aspects of the project which are most critical when we are actually managing the project.

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Definitions:

Required Rates

The minimum returns demanded by investors or lenders to compensate for the risk of an investment or loan.

Bonds

Bonds are debt securities issued by corporations or governments to raise funds, where the bond issuer agrees to pay back the principal along with interest.

Zero Coupon Issue

A bond or debt security that doesn’t pay periodic interest but is traded at a discount, realizing gains at maturity.

Annual Coupon

The yearly interest payment made by a bond issuer to its bondholders.