If a project's expected rate of return exceeds its opportunity cost of capital, one would expect:
A) the profitability index to exceed 1.0.
B) the opportunity cost of capital to be too low.
C) the IRR to exceed the opportunity cost of capital.
D)the NPV to be zero.

Question

Quizplus · Accepted Answer

If a project's expected rate of return exceeds its opportunity cost of capital, it means that the project is expected to generate more returns than the cost of capital required to finance the project. In this case, the IRR (Internal Rate of Return) is expected to exceed the opportunity cost of capital. This is because IRR represents the rate at which the present value of the project's cash inflows equals the present value of its cash outflows. Therefore, if the project's IRR is higher than the opportunity cost of capital, it means that the project's cash inflows are sufficient to cover not only the project's costs but also the cost of capital.

If a Project's Expected Rate of Return Exceeds Its Opportunity