The NPV Investment Decision Rule Is Applicable Even in the Case

question 16

Multiple Choice

The NPV investment decision rule is applicable even in the case of a real option, such as a real estate development investment decision, because:

• A) The NPV rule states that any investment with a positive NPV should be undertaken.
• B) The real options nature of development enables a negative NPV investment to be rational.
• C) The NPV rule will insure that a development project that presents a higher IRR will be chosen over one that presents a lower IRR.
• D) The NPV rule requires making the decision that maximizes the NPV over all mutually exclusive alternatives, and building today versus waiting are mutually exclusive alternatives on a given piece of land.

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Definitions:

Dissolved

The process of legally disbanding a corporation or partnership, effectively ending its existence.

Errand Runner

A person or service engaged to perform small tasks or deliveries.

Implied Authority

A form of authority of an agent that is not explicitly stated but is assumed to be granted as part of the agent's duties.

Winding Up

The process of closing down a company by settling its liabilities and distributing any remaining assets to its shareholders.