Suppose a Firm's CFO Thinks That an Externality Is Present

question 52

True/False

Suppose a firm's CFO thinks that an externality is present in a project, but that it cannot be quantified with any precision⎯estimates of its effect would really just be guesses.In this case, the externality should be ignored⎯i.e., not considered at all⎯because if it were considered it would make the analysis appear more precise than it really is.

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Definitions:

Aging Schedule

A table summarizing the amounts owed to a business, grouped by the length of time the bills have been outstanding, used to monitor and manage receivables.

Old Accounts Receivables

Outstanding invoices a company has yet to collect from customers past the due date.

Percentage of Receivables Basis

An accounting method used to estimate the amount of receivables that will not be collected by calculating a percentage of the total receivables.

Income Statement Relationships

The connections between various financial items on the income statement, illustrating how sales revenue affects net income.