Testing a Theory by Comparing the Theory's Implications with Data

question 73

Multiple Choice

Testing a theory by comparing the theory's implications with data obtained in the real world is called

• A)empirical analysis.
• B)descriptive calibration.
• C)historical variance analysis.
• D)univariate analysis.

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Definitions:

Cash Flows

The movement of money into and out of a business, representing its operating, investing, and financing activities.

WACC

Weighted Average Cost of Capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted, including debt, equity, and any other long-term debt.

Reinvestment

The process of using dividends, interest, or any other form of income generated by an investment to purchase additional shares or units of that investment.

IRR Method

The process of estimating the rate of return on an investment by setting the net present value of all cash flows to zero, to assess its profitability.