Which of the Following Statements Is CORRECT

question 14

Multiple Choice

Which of the following statements is CORRECT?

• A) An externality is a situation where a project would have an adverse effect on some other part of the firm's overall operations.If the project would have a favorable effect on other operations,then this is not an externality.
• B) An example of an externality is a situation where a bank opens a new office,and that new office causes deposits in the bank's other offices to increase.
• C) The NPV method automatically deals correctly with externalities,even if the externalities are not specifically identified,but the IRR method does not.This is another reason to favor the NPV.
• D) Both the NPV and IRR methods deal correctly with externalities,even if the externalities are not specifically identified.However,the payback method does not.
• E) Identifying an externality can never lead to an increase in the calculated NPV.

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Definitions:

Anaerobic Respiration

Breakdown of glucose in the absence of oxygen to produce lactic acid and two ATPs; consists of glycolysis and the reduction of pyruvic acid to lactic acid.

Aerobic Respiration

Breakdown of glucose in the presence of oxygen to produce carbon dioxide, water, and approximately 38 ATPs; includes glycolysis, the citric acid cycle, and the electron-transport chain.

ATP

Adenosine triphosphate, a molecule that carries energy within cells for metabolism.

Nutrient Molecules

Essential compounds absorbed by the body to provide energy, support growth, and maintain and repair body tissues.