Evaluating a new investment opportunity


Problem 1: A financial manager evaluating a new investment opportunity should assess:

  • only the cash requirements of the project.
  • the risks and returns of the investment without regard to other investments.
  • how the project compares with the average project of the firm.
  • the resources that the opportunity will consume.

Problem 2: For investments involving significant risk, the cost of capital is equal to the:

  • risk-free interest rate plus an appropriate risk premium.
  • rate of return on the investment
  • NPV of the future income from the investment.
  • systematic risk of the investment.

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Finance Basics: Evaluating a new investment opportunity
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