Question

Your company has established a hurdle rate, or cost of capital of 15% for new investment projects. You have just analyzed a new potential investment and it has a net present value of $0.00 (zero). What is the correct decision for your company?

Answer 1

Answer:

Explanation:

A project whose NPV equals zero shows that return on the project is equal to the cost of capital (hurdle rate). This may not seem like an attractive investment however, it is viable and given some conditions, a company may decide to invest in it. An example of such would be if investors and financial managers believe that the hurdle rate used in determining the risk of the project is exaggerated or if letting the available capital stay idle is more costly than investing it in a project that will break-even.