Sometimes Ignoring That Money Is Fungible Can

question 89

Multiple Choice

Sometimes ignoring that money is fungible can:
I. be useful and help someone stay on budget.
II. lead to riskier decisions than individuals would otherwise make.
III. be irrational and cause costly mistakes.

• A)I only
• B)II and III only
• C)III only
• D)I, II, and III

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Definitions:

Discount Rate

The interest rate the Federal Reserve charges commercial banks for short-term loans, or a rate used to discount future cash flows to their present value.

IRR Method

The Internal Rate of Return method, a capital budgeting technique that calculates the rate of return at which the net present value of all the cash flows (both positive and negative) from a project or investment equals zero.

Nonconventional Flows

Atypical or irregular cash flows in an investment, complicating the assessment of an investment's value or project's profitability.

Profitability Index

A calculation that measures the relative profitability of an investment, by dividing the present value of future cash flows by the initial investment cost.