To compensate the firm's investors adequately, the project should generate an annual pretax expected cash flow equal to which of the following:

Question

Quizplus · Accepted Answer

The firm's investors include both lenders and shareholders. Lenders receive interest, while shareholders expect a return on their investment. Therefore, to compensate both lenders and shareholders adequately, the project should generate an annual pretax expected cash flow equal to the sum of the lender's interest and the shareholders' return.

To Compensate the Firm's Investors Adequately, the Project Should Generate