Which of the Following Statements Is CORRECT

question 35

Multiple Choice

Which of the following statements is CORRECT?

• A) Only incremental cash flows are relevant in project analysis, the proper incremental cash flows are the reported accounting profits, and thus reported accounting income should be used as the basis for investor and managerial decisions.
• B) It is unrealistic to believe that any increases in net working capital required at the start of an expansion project can be recovered at the project's completion.Working capital like inventory is almost always used up in operations.Thus, cash flows associated with working capital should be included only at the start of a project's life.
• C) If equipment is expected to be sold for more than its book value at the end of a project's life, this will result in a profit.In this case, despite taxes on the profit, the end-of-project cash flow will be greater than if the asset had been sold at book value, other things held constant.
• D) Changes in net working capital refer to changes in current assets and current liabilities, not to changes in long-term assets and liabilities.Therefore, changes in net working capital should not be considered in a capital budgeting analysis.
• E) If an asset is sold for less than its book value at the end of a project's life, it will generate a loss for the firm, hence its terminal cash flow will be negative.

Determine how changes in prices and income affect budget constraints and consumption choices.

Identify factors influencing the marginal utility of goods and services.

Analyze the impact of diminishing marginal utility on consumption decisions.

Understand and apply the concept of budget constraints in consumer choice analysis.

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Definitions:

Genital Stage

A stage of psychosexual development in Freudian theory occurring from puberty onwards, focused on mature sexual intimacy and relationships.

Phallic Stage

A Freudian concept referring to a stage of psychosexual development, typically occurring between the ages of three and six, where children's focus of pleasure is on the genital organs.

Latency Stage

A phase in Freud’s psychosexual development occurring between ages 6 and puberty, where sexual urges are repressed, and children focus on social and intellectual skills.

Postpone Gratification

The ability to resist the temptation for an immediate reward and wait for a later reward.