A project with higher than average risk offers an expected return of 18%.Which statement is correct if the company's opportunity cost of capital is 12% and the project's opportunity cost of capital is 15%?
A) Project NPV is positive; it should be accepted.
B) Project NPV is negative; it should be rejected.
C) Project NPV is positive but it should be rejected.
D) Project NPV is negative but it should be accepted.

Question

Quizplus · Accepted Answer

The expected return of 18% is higher than the opportunity cost of capital of 12%. This suggests that the project is generating sufficient returns to justify the investment. Additionally, the project's opportunity cost of capital (15%) is also lower than the expected return (18%). Therefore, based on these factors, the project's net present value (NPV) is likely to be positive and the project should be accepted.

A Project with Higher Than Average Risk Offers an Expected