Commitment Devices

question 8

Multiple Choice

Commitment devices:

• A)need strong commitments that are hard to get out of in order to be successful.
• B)never have strong commitments that are hard to get out of.
• C)can be successful whether they have strong or weak commitments.
• D)are only successful if they have weak commitments that are easy to break.

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Definitions:

Payback Period

A rephrased definition: The duration needed to recover the initial expenditure on an investment through the cash flows it generates.

AAR

Average annual return, indicating the mean yearly profit or loss generated by an investment over a specified period.

Firm Value

The total value of a company, considering all sources of capital including debt and equity.

Required Return

The minimum expected return on an investment needed by an investor, factoring in the risk associated with the investment.