A project with a 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 project's expected return of 18% is higher than both the company's opportunity cost of capital (12%) and the project's opportunity cost of capital (15%). This indicates that the project is expected to generate a return greater than the cost of the funds used to finance it. Therefore, the project is expected to have a positive NPV and should be accepted.

A Project with a Higher Than Average Risk Offers an Expected