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Investment decision:
Investment decision can be referred to as capital budgeting. It involves finding solutions to questions like whether to add to capital assets today will increase the revenues of tomorrow to cover costs.
To identify: The correct statement from the given statements.
Answer to Problem 1MCQ
Solution:
Option a.
Hurdle
Explanation of Solution
Option a.
Hurdle rate of return can be referred to as a minimum rate that the corporation expects while investing in a particular project. It is also known as target rate.
Hence, option (a) is correct.
Option b.
Payback period is a type of capital budgeting technique which describes the number of year or length of time needed for proposal‘s cumulative
Hence, option (b) is not correct.
Option c.
Hence, option (c) is not correct.
Option d.
The average rate of return is a type of capital budgeting technique which is based on accounting principle of
Hence, option (d) is not correct.
Option e.
Maximum rate of return is the maximum proportion of return a corporation expects from the project. This rate is generally always beyond the estimated targets.
Hence, option (e) is not correct.
Hence, it can be concluded that the minimum acceptable rate of return for an investment decision is the hurdle rate of return. Therefore, option (a) is correct.
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Chapter 24 Solutions
Loose-Leaf for Financial and Managerial Accounting
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