Suppose That a Firm Plans to Provide Defense Against Asteroids

question 61

Multiple Choice

Suppose that a firm plans to provide defense against asteroids striking the earth. Which of the following is TRUE?

• A) Most people will find it in their self-interest to pay the firm to protect the earth.
• B) Asteroid protection is a private good, so the firm will make a lot of profit.
• C) In case of an earth-bound asteroid, the firm will not protect people who refused to pay for asteroid defense.
• D) Most people will not pay a firm for asteroid defense.

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Definitions:

Mutually Exclusive

A condition where the occurrence of one event precludes the occurrence of another in decision making or statistical probability.

Discount Rate

The rate applied in DCF assessment to compute the present worth of imminent cash flows.

Internal Rate

Short for Internal Rate of Return (IRR), a financial metric used to estimate the profitability of potential investments by calculating the rate of return at which net present value of all cash flows (both positive and negative) from a project equals zero.

Profitability Index

A capital budgeting tool that measures the ratio of the present value of future cash flows from an investment to the investment's initial cost.