Money That Has Been or Will Be Paid Regardless of the Decision

question 48

Multiple Choice

Money that has been or will be paid regardless of the decision whether or not to proceed with the project is:

• A)cannibalization.
• B)considered as part of the initial investment in the project.
• C)an opportunity cost.
• D)a sunk cost.

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Definitions:

Two-factor Model

A financial model that considers two sources of risk in its valuation or pricing, typically used in evaluating or predicting financial returns.

Market Risk

The risk of losses due to factors that affect an entire market or asset class, also known as systematic risk, which cannot be eliminated through diversification.

Interest Rate Risk

The potential for investment losses resulting from changes in interest rates.

Capital Asset Pricing Model

A model that describes the relationship between systematic risk and expected return for assets, particularly stocks; it is used to determine a theoretically appropriate required rate of return of an asset.