All of the Following Are the General Principles Underlying the Valuation

question 65

Multiple Choice

All of the following are the general principles underlying the valuation of liabilities except:

• A) Liabilities requiring future cash payments appear at the present value of the required future cash flows discounted at an interest rate that reflects the uncertainty that the firm will be able to make the cash payments.
• B) The fair value of a liability cannot differ from the amount appearing on the balance sheet, particularly for long-term debt.
• C) Liabilities representing cash advances from customers appear at the amount of the cash advance.
• D) Liabilities requiring the future delivery of goods or services appear at the estimated cost of those goods and services.

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Definitions:

Marginal Social Benefit

The supplementary gain to the public derived from making one extra unit of a good or service.

Pollution

The contamination of the natural environment with harmful substances or energies resulting in adverse effects on living organisms and ecosystems.

Tradable Emissions Permits

A system in which companies are allocated permits that allow them to emit a certain level of pollutants, with the option to buy, sell, or trade permits with other companies.

Equilibrium Price

The price at which the quantity of goods supplied is equal to the quantity of goods demanded in the market, leading to market balance.