Which of the following factors influence the expected returns on investment projects?

• A. Risk associated with the project
• B. The historical cost of the asset
• C. The number of employees in the company
• D. The par value of company shares

Answer: (A)

Verified step by step guidance

1. Understand the concept of expected returns: Expected returns on investment projects are the anticipated profits or gains from an investment, typically influenced by factors that affect the risk and potential profitability of the project.
2. Evaluate the risk associated with the project: Risk is a key determinant of expected returns. Higher risk typically demands higher expected returns to compensate investors for the uncertainty. Analyze how the project's risk profile impacts its expected returns.
3. Consider the historical cost of the asset: The historical cost of an asset refers to its original purchase price. While this is important for accounting purposes, it does not directly influence the expected returns on a project, as expected returns are forward-looking and based on future cash flows.
4. Assess the number of employees in the company: The number of employees is a measure of company size or operational scale but does not directly affect the expected returns of a specific investment project. It is not a relevant factor in this context.
5. Review the par value of company shares: The par value of shares is a nominal value assigned to stock and is unrelated to the expected returns of investment projects. It is primarily a legal or accounting concept and does not influence project profitability.