When You Set the Project NPV Equal to Zero in Calculating

question 210

Multiple Choice

When you set the project NPV equal to zero in calculating a bid price you are:

• A) Going to earn zero net income on the project.
• B) Appropriately including opportunity costs in your analysis.
• C) Certain to be the low bidder since, if any firm does bid lower, they will be bidding based on a negative NPV project.
• D) Assured of earning your firm's highest possible IRR.
• E) Finding the price at which you expect to create zero wealth for your shareholders.

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Definitions:

Monopolies

Monopolies exist when a single company or entity has exclusive control over a particular market or industry, potentially leading to higher prices and lower-quality products or services due to lack of competition.

Supply Curve

A graph showing the relationship between the price of a good and the amount of it that suppliers are willing to sell, normally upward sloping due to the law of supply.

Marginal Cost

The price tag attached to producing one more unit of a product or service.

Monopolist

An individual or entity that holds exclusive control over the supply of a particular product or service, thus determining the price and market conditions.