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Question 318 - CTFA discussion

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Assume that a firm has accurately calculated the net cash flows relating to an investment proposal. If the net present value of this proposal is greater than zero and the firm is not under the constraint of capital rationing, then the firm should:

A.
calculate the IRR of this investment to be certain that the IRR is greater than the cost of capital
Answers
A.
calculate the IRR of this investment to be certain that the IRR is greater than the cost of capital
B.
Compare the profitability index of the investment to those of other possible investments
Answers
B.
Compare the profitability index of the investment to those of other possible investments
C.
Calculate the payback period to make certain that the initial cash outlay can be recovered within an appropriate period of time
Answers
C.
Calculate the payback period to make certain that the initial cash outlay can be recovered within an appropriate period of time
D.
Accept the proposal, since the acceptance of value-creating investments should increase shareholder wealth
Answers
D.
Accept the proposal, since the acceptance of value-creating investments should increase shareholder wealth
Suggested answer: D
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asked 16/09/2024
Kimon Pope
32 questions
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