In a Binding Situation

question 184

Multiple Choice

In a binding situation,

• A) planned investment increases when the price level decreases.
• B) output increases when the price level decreases.
• C) planned investment and output both increase when the price level decreases.
• D) neither planned investment nor output change when the price level decreases.

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Definitions:

Mutually Exclusive

A condition where the occurrence of one event precludes the occurrence of another in decision making or statistical probability.

Discount Rate

The rate applied in DCF assessment to compute the present worth of imminent cash flows.

Internal Rate

Short for Internal Rate of Return (IRR), a financial metric used to estimate the profitability of potential investments by calculating the rate of return at which net present value of all cash flows (both positive and negative) from a project equals zero.

Profitability Index

A capital budgeting tool that measures the ratio of the present value of future cash flows from an investment to the investment's initial cost.