The Basic Capital Budgeting Decision Models, That Is, NPV and IRR

question 74

Multiple Choice

The basic capital budgeting decision models, that is, NPV and IRR, handle risk by

• A)ignoring it
• B)assuming all cash flows are known with certainty
• C)assuming all projects are of average risk and evaluating them based on expected values
• D)using risk-adjusted discount rates to evaluate projects

---

Definitions:

Productive Efficiency

A situation where goods and services are produced at the lowest possible cost and resources are utilized optimally.

Cost Minimization

A strategy employed by businesses to reduce production or operational costs to the lowest possible level without sacrificing quality or output.

Marginal Cost

The cost implicated in generating an added unit of a product or service.

Efficient Allocation

The distribution of resources in a way that maximizes the net benefit received by an economy.