Testing the Validity of a Composite Measure by Using Another

question 23

Multiple Choice

Testing the validity of a composite measure by using another, proven indicator is known as:

• A)external validation.
• B)internal validation.
• C)index scoring.
• D)Thurstone scaling.
• E)face validation.

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Definitions:

MIRR

Modified Internal Rate of Return, a financial measure used to evaluate the profitability of investments, adjusting for differences in cash flow timing and reinvestment rates.

Cost of Capital

The rate of return that a company needs to earn on its investment projects to maintain its market value and satisfy its investors and creditors.

Internal Rate of Return

The discount rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equals zero.

Multiple IRRs

The situation where a project has more than one internal rate of return, occurring due to unconventional cash flows.