Which of the Following Statements Is CORRECT

question 30

Multiple Choice

Which of the following statements is CORRECT?

• A) If a firm is found guilty of cannibalization in a court of law,then it is judged to have taken unfair advantage of its competitors.Thus,cannibalization is dealt with by society through the antitrust laws.
• B) If a firm is found guilty of cannibalization in a court of law,then it is judged to have taken unfair advantage of its customers.Thus,cannibalization is dealt with by society through the antitrust laws.
• C) If cannibalization exists,then the cash flows associated with the project must be increased to offset these effects.Otherwise,the calculated NPV will be biased downward.
• D) If cannibalization is determined to exist,then this means that the calculated NPV if cannibalization is considered will be higher than the NPV if this effect is not recognized.
• E) Cannibalization,as described in the text,is a type of externality that is not against the law,and any harm it causes is done to the firm itself.

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Definitions:

Capital Asset

A Capital Asset is a significant piece of property such as investments, real estate, and personal items that is not easily sold in the regular course of a business's operations.

Section 1231

A tax term relating to the classification of property that includes depreciable property and real property (e.g., buildings and equipment) used in a trade or business and held for more than one year. gains from the sale of Section 1231 property can be taxed at more favorable capital gains rates rather than ordinary income rates.

Ordinary Loss

A loss resulting from regular business operations that is fully deductible against ordinary income on a taxpayer's tax return.

Sole Proprietor

An individual who owns and operates a business alone, bearing sole responsibility for its operations and liabilities.