Question: 1. If the present value of the expected net cash flows from a machine, discounted at 10%, exceeds the amount to be invested, what can you say about the investment's expected rate of return? What can you say about the expected rate of return if the present value of the net cash flows, discounted at 10%, is less than the investment amount?
2. Why should managers set the required rate of return higher than the rate at which money can be borrowed when making a typical capital budgeting decision?