Question: Richa is looking at the results of a Capital Investment Appraisal. The report shows that, assuming a Cost of Capital of 10%, investing in a

  1. Richa is looking at the results of a Capital Investment Appraisal. The report shows that, assuming a Cost of Capital of 10%, investing in a plant to manufacture a new clothing line would give a positive NPV and an IRR of 23%. Should the company buy the machine?

  1. Yes. NPV is positive and IRR exceeds cost of capital.
  2. Yes. NPV is positive and IRR is less than cost of capital.
  3. No. NPV does not provide enough information.
  4. No. IRR is higher than the cost of capital

  1. Which one of the following statements is NOT true?

  1. Retained profits represent a free source of funds.
  2. The issuing of shares to raise finance can be expensive.
  3. Retained profits are the main source of business funds.
  4. Borrowing can increase the risk that a company faces.

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