If a project is assigned a required rate of return of zero,then:
A)the timing of the project's cash flows has no bearing on the value of the project.
B)the project will always be accepted.
C)the project will always be rejected.
D)whether the project is accepted or rejected will depend on the timing of the cash flows.
E)the project can never add value for the shareholders.

Question

Quizplus · Accepted Answer

If a project is assigned a required rate of return of zero, it means that the project is considered risk-free and the investors do not require any return on their investment. In such a scenario, the timing of the project's cash flows becomes irrelevant because the value of the project does not depend on the discount rate applied to its cash flows. Thus, the correct choice is A, the timing of the project's cash flows has no bearing on the value of the project.

If a Project Is Assigned a Required Rate of Return