The Two Cardinal Rules That Financial Analysts Should Follow to Avoid

question 18

True/False

The two cardinal rules that financial analysts should follow to avoid capital budgeting errors are: (1) in the NPV equation, the numerator should use income calculated in accordance with generally accepted accounting principles, and (2) all incremental cash flows should be considered when making accept/reject decisions.

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Definitions:

Global Environment

Refers to the international context of environmental conditions, including climate change, biodiversity, and human impacts on Earth's ecosystems.

Soil Microorganism Respiration

The metabolic process by which soil microorganisms convert organic matter into carbon dioxide and energy.

Human Combustion

A supposed phenomenon where a human body allegedly catches fire and burns as a result of internal chemical reactions, without an external source of ignition.

Percolation

The process of a liquid slowly passing through a filter or porous substance, often used in the context of water movement through soil.