Classical Test Theory Is Based on Certain Assumptions

question 66

Essay

Classical Test Theory is based on certain assumptions. Discuss these basic assumptions and the theory behind them, and then address the challenges to any of these assumptions.

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Definitions:

Projected Cash Flows

Estimated cash movements over a future period, based on expected income and expenses.

NPV

Net Present Value; the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Operating Working Capital

Current assets minus current liabilities, reflecting the short-term liquidity of a business.

Expansion Projects

Initiatives undertaken by a firm to increase its capacity or operations, often requiring significant capital investment.