Which of the Following Statements Is CORRECT

question 35

Multiple Choice

Which of the following statements is CORRECT?

• A) The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases.
• B) An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life.
• C) An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital.
• D) We cannot draw a project's NPV profile unless we know the appropriate WACC for use in evaluating the project's NPV.
• E) An NPV profile graph shows how a project's payback varies as the cost of capital changes.

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Definitions:

Economies of Scale

The cost advantage achieved by an increase in production, leading to a reduction in the per unit cost.

Capital Facilities

Assets such as buildings, utilities, and major machinery which are essential for the production process in an organization or for providing services.

Laissez-faire Perspective

An economic philosophy advocating for minimal government intervention in the market, allowing individuals to act according to their own self-interests.

Monopoly Power

The exclusive control by one company over an entire industry or sector, allowing the company to manipulate market prices and conditions.