According to the National Spending Approach, Which of the Following

question 227

Multiple Choice

According to the national spending approach, which of the following is counted in investment?

• A) A restaurant buys a new wood-fired oven for baking pizzas.
• B) A college graduate buys a new car after graduation.
• C) A student pays for tuition at a university.
• D) A retiree buys newly issued U.S. government bonds

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Definitions:

Risk-adjusted Discount Rate

A discount rate that has been altered to account for the risk of the cash flows, used in capital budgeting to reflect the project's risk.

Net Present Value (NPV)

A method used in capital budgeting to evaluate the profitability of an investment or project by calculating the difference between the present value of cash inflows and outflows.

Internal Rate of Return (IRR)

The specific rate at which the net present value of a project's cash flows equals zero.

Incremental Cash Flows

Incremental cash flows are the additional cash inflows or outflows expected from a new project or investment when compared to a baseline scenario.