Question

Which of the following statements concerning existing projects is true?An existing project should be:
I. Continued when its continuing value is greater than both its liquidation and divestiture value.
II. Liquidated when its liquidation value is greater than its divestiture value.
III. Divested when its divestiture value is greater than both its continuing value and its liquidation value.

Select one:

a.  I only

b. II only

c. I and II only

d.  I and III only

e.  II and III only

Which of the following can be expected to create value without qualification?

I. Selling an underperforming project for more than its present value
II. Disposing of an underperforming project that is creating less present value than expected
III. Adding debt to the firm's capital structure

Select one:

A. I only

B. I and II only

C. I and III only

D. II and III only

E. I, II, and III

F. None of the above

Answer 1

When given a choice, that alternative should be selected which gives higher return

So, An existing project should be:

I.Continued when its continuing value is greater than both its liquidation and divestiture value, since higher return

III. Divested when its divestiture value is greater than both its continuing value and its liquidation value.

II does not compare with the continuing Value, hence cannot be said to be true

Therefore, d.  I and III only

A I only

I.Selling an underperforming project for more than its present value

This will add value