Which of the Following Statements Is CORRECT

question 20

Multiple Choice

Which of the following statements is CORRECT?

• A) In a capital budgeting analysis where part of the funds used to finance the project would be raised as debt,failure to include interest expense as a cost when determining the project's cash flows will lead to an upward bias in the NPV.
• B) In a capital budgeting analysis where part of the funds used to finance the project would be raised as debt,failure to include interest expense as a cost when determining the project's cash flows will lead to a downward bias in the NPV.
• C) The existence of any type of "externality" will reduce the calculated NPV versus the NPV that would exist without the externality.
• D) If one of the assets to be used by a potential project is already owned by the firm,and if that asset could be sold or leased to another firm if the new project were not undertaken,then the net proceeds that could be obtained should be charged as a cost to the project under consideration.
• E) If one of the assets to be used by a potential project is already owned by the firm but is not being used,then any costs associated with that asset is a sunk cost and should be ignored.

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Definitions:

Magnitude of Consequences

The significance or impact of the outcomes resulting from a decision or action, considering both its positive and negative aspects.

Social Consensus

Agreement within a group or society on beliefs, values, or social norms.

Self-Serving Decisions

Decisions made with the primary goal of benefiting oneself, often at the expense of others or the common good.

Hedonist Principle

A principle suggesting that people are motivated to engage in behaviors that produce pleasure or avoid pain.