The Two Cardinal Rules That Financial Analysts Should Follow to Avoid

question 15

True/False

The two cardinal rules that financial analysts should follow to avoid 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 for capital budgeting projects.

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Definitions:

Innovation

The introduction of new ideas, goods, services, and practices to the market, which significantly improves or enhances value.

Invention

The creation of a new product, process, or idea that did not exist before, which typically involves innovation and creativity.

Natural Monopoly

A market condition where a single supplier is most efficient in providing goods or services due to high fixed or startup costs.

Economically Efficient

A situation where resources are allocated in a way that maximizes the net benefit to society.