Which of the Following Statements Is Correct

question 67

Multiple Choice

Which of the following statements is correct?

• A) If a project can create employment in a slump area, firm should include such an externality in the NPV calculations.
• B) 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.
• C) If cannibalization is determined to exist, then this means that the calculated NPV considering cannibalization will be higher than the NPV that does not recognize these effects.
• D) Cannibalization 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 Gains

The increase in value of an asset or investment above its purchase price, realized when the asset is sold.

NAV

Net Asset Value (NAV) represents the per-share market value of all the securities held by a mutual fund, ETF, or similar investment vehicle, calculated by subtracting the fund's liabilities from its assets and dividing by the number of shares outstanding.

Income Distributions

Payments made to investors from the income generated by the assets within a fund or investment, such as dividends or interest payments.

Capital Gain Distributions

Payments made to investors of profits from the sale of securities within a portfolio, often associated with mutual funds.