Naomi needs to earn a twelve percent return from investing in her cousin's business. Under the NPV method of discounting cash flows, if the business can earn only a ten percent return, she will not satisfy her
A) expected cost of capital.
B) internal rate of return.
C) opportunity cost.
D) required rate of return.

Question

Quizplus · Accepted Answer

Naomi's requirement of a 12% return represents her required rate of return, which is the minimum acceptable return for her investment given her risk tolerance and opportunity cost. Therefore, if the business can only earn 10%, it will not meet her required rate of return, and she will not be satisfied with the investment. The other options (expected cost of capital, internal rate of return, opportunity cost) do not accurately capture the specific criteria that Naomi is using to evaluate the investment.

Naomi Needs to Earn a Twelve Percent Return from Investing