Which of the Following Would Have the Greatest Impact on the Net

question 42

Multiple Choice

Which of the following would have the greatest impact on the net present value of an investment?

• A) The initial cost of the investment is understated by $7,000
• B) The net annual cash inflows are understated by $1,400 for 5 years
• C) The salvage value is understated by $7,000
• D) All of these should have the same impact

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Definitions:

Decision Tree

A decision tree is a graphical representation used in decision analysis to display choices and their possible outcomes, including chance event outcomes, resource costs, and utility.

Opportunity Loss

The difference in value between the chosen option and the best possible option that was not chosen.

Optimal Alternative

The best or most effective option among a set of alternatives, under given conditions.

Expected Monetary Value(EMV)

A calculated average of all possible outcomes of a decision, where each outcome is weighted by its probability of occurring and its monetary impact.