The Possibility That More Than One Discount Rate Will Make

question 303

Multiple Choice

The possibility that more than one discount rate will make the NPV of an investment zero is called the ___________ problem.

• A) Net present value profiling.
• B) Operational ambiguity.
• C) Mutually exclusive investment decisions.
• D) Issues of scale.
• E) Multiple rates of return.

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Definitions:

Optimal Average Cash Balance

The ideal amount of cash that a company should hold to minimize costs associated with holding too much or too little cash.

Disbursements

Payments made by a business, usually consisting of expenses, investments, and other financial outlays.

Lower Cash Balance Limit

The minimum amount of cash that a business aims to maintain in its cash reserves to meet emergency or operational needs.

Miller-Orr Model

The Miller-Orr Model is a financial model used to manage cash flow and determine the optimal balance between holding cash versus short-term investments.