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A firm takes on a project that would earn a return of 12 percent. If the appropriate cost of capital is also 12 percent, did the firm make the right decision. Explain. What is the impact on the firm if it accepts a project with a negative NPV?

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The solution determines if a firm made the right decision if they accept a project that would earn a return of 12 percent if the appropriate cost of capital is also 12 percent. References are also provided.

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No, the firm did not make the right decision. In order for the project to be profitable (for the firm to make money), the return on the project needs to outweigh the cost of capital. Because the cost of capital and return ...

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