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:

Wheat Spot Price

The current market price at which wheat can be bought or sold for immediate delivery.

Profit

The financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Contango

A situation in futures trading where the future price of a commodity is higher than the spot price, often indicating expectations of rising prices.

Natural Hedgers

Entities or individuals who inherently have an opposite risk exposure compared to their needed market position, allowing them to hedge their risks without having to use derivative products.