Which of the Following Statements Regarding NPV Analysis Is Correct

question 301

Multiple Choice

Which of the following statements regarding NPV analysis is correct?

• A) NPV calculations do not depend critically on cash flow projections.
• B) NPV calculations are only as good as the information that goes into their calculation.
• C) Negative NPV projects should be scrutinized to make sure there is a sound economic basis underlying them.
• D) Positive NPV projects that have relatively low levels of fixed costs should be more heavily scrutinized than projects with relatively high levels of fixed costs.
• E) NPV calculations will lead to correct decision-making even if the wrong discount rate is used.

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Definitions:

Investment

The process of distributing funds or assets in anticipation of earning returns or profits.

Classicals

Economic theorists and policy makers from the 18th and 19th centuries who focused on free markets, competition, and the ideas of self-regulating economies.

Keynes

An economist who revolutionized economic thinking with theories on government spending's effects on economic cycles.

Depression

A prolonged and severe downturn in economic activity, characterized by significant unemployment, declining output, and deflation.