Suppose a Firm's CFO Thinks That an Externality Is Present

question 52

True/False

Suppose a firm's CFO thinks that an externality is present in a project, but that it cannot be quantified with any precision⎯estimates of its effect would really just be guesses.In this case, the externality should be ignored⎯i.e., not considered at all⎯because if it were considered it would make the analysis appear more precise than it really is.

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Definitions:

Sell Now

A directive or decision to sell an asset or product immediately, often due to market conditions.

Book Value

The net value of an asset as recorded on the balance sheet, calculated as the asset's cost minus any depreciation, amortization, or impairment costs.

Sunk Cost

Costs that have already been incurred and cannot be recovered or altered, and should not affect future business decisions.

Relevant Cost

Costs that will be affected by a decision in the future and therefore should be considered in decision-making processes.