Which of the Following Best Describes Why the Predicted Incremental

question 67

Multiple Choice

Which of the following best describes why the predicted incremental earnings arising from a given decision are not sufficient in and of themselves to determine whether that decision is worthwhile?

• A) These earnings are not actual cash flows.
• B) They are not easily predicted from historical financial statements of a firm and its competitors.
• C) They do not show how the firm's earnings are expected to change as the result of a particular decision.
• D) They do not tell how the decision affects the firm's reported profits from an accounting perspective.

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Definitions:

Marginal Social Cost

The additional cost imposed on society due to the production or consumption of one more unit of a good or service.

Competitive Market

A market structure characterized by a large number of buyers and sellers, free entry and exit, and a product that is homogenous across suppliers, leading to price competition and efficiency.

External Benefits

Benefits from a transaction or activity that accrue to others not directly involved in the transaction or activity.

External Costs

Costs generated by production or consumption activities that are not borne by the producer or consumer but by a third party or society at large.