A firm should not invest in a capital project unless its NPV exceeds the firm's cost of capital.

Question

Quizplus · Accepted Answer

The decision to invest in a capital project is typically based on whether the project's NPV (Net Present Value) is positive, not necessarily on whether it exceeds the firm's cost of capital. A positive NPV indicates that the project is expected to generate a return greater than the discount rate (which reflects the cost of capital), thus adding value to the firm.

A Firm Should Not Invest in a Capital Project Unless