As a Result of Asymmetric Information

question 63

Multiple Choice

As a result of asymmetric information

• A)small firms are better able to secure external financing than are large firms.
• B)investment spending may fall in a recession even if true investment opportunities do not change.
• C)short-run fluctuations in output are smaller than they would otherwise be.
• D)fluctuations in the amount of internal funds have large effects on the investment in plant and equipment carried out by mature firms.

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Definitions:

Average Investment

A calculation to assess the average amount of investment over a certain period, often used in evaluating the efficiency or profitability of an investment.

Time Value of Money

The concept that money available at the present time is worth more than the same amount in the future due to its earning capacity.

Net Present Value

A calculation that compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account.

Present Value Factor

A factor used to calculate the present value of a future amount of money or stream of cash flows given a specific rate of return.