A Reason That a Small Firm Would Not Use a Discounted

question 12

Multiple Choice

A reason that a small firm would not use a discounted cash flow technique in evaluating capital investments would be that

• A) the accounting rate of return is better for a small firm.
• B) liquidity is less of an issue for a small company.
• C) small firms invest more in short-term assets than do large companies.
• D) nonfinancial issues may be more important for a small firm.

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Definitions:

Sales Promotion

A marketing strategy involving the use of short-term incentives to encourage the purchase or sale of a product or service.

Marginal Revenue

The increase in revenue that results from selling one more unit of a product.

Imperfect Competition

A market structure characterized by the presence of several competing firms but which lack the conditions of perfect competition, often leading to market power.

Implicit Cost

The monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market; equal to what the resource could have earned in the best-paying alternative employment; includes a normal profit.