Which of the Following Is True of the Certainty Equivalent

question 103

Multiple Choice

Which of the following is true of the certainty equivalent approach? ​

• A)It asks the decision makers to consider each forecast cash flow individually and come up with a lower, risk free cash flow that is equally acceptable.
• B)It is accomplished by regressing the division's accounting return on equity in previous years against the return on a major stock market index.
• C)It selects worst, middle, and best outcomes for each cash flow and computes NPV for a variety of combinations.
• D)It models cash flows as random variables and repeatedly calculates NPV.

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Definitions:

Accumulated Depreciation

The total amount of depreciation expense that has been recorded for an asset over its useful life, reducing its initial cost to its current book value.

Book Value

The value of an asset as recorded on a company's balance sheet, calculated as its cost minus accumulated depreciation.

Adjusting Entry

An accounting journal entry made to update the accounts and reflect the correct financial position before financial statements are prepared.

Liability Account

An account on the balance sheet that represents obligations to pay debts or amounts owing to lenders, suppliers, employees, or other creditors.