Which of the Following Makes Using Present Value Approaches in Capacity

question 44

Multiple Choice

Which of the following makes using present value approaches in capacity decisions difficult?

• A)The discount rate must be adjusted to account for inflation.
• B)Some cash flows are positive and other cash flows are negative.
• C)The payback period might not be long enough to justify a capacity decision.
• D)Capacity decisions are made amidst much uncertainty, so cash flows cannot be estimated with great accuracy.
• E)There is a cash outflow at the outset followed by, possibly, net cash inflows.

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Definitions:

Compounded Monthly

Interest calculation method where the accumulated interest is added to the principal amount every month, allowing the interest in the next month to be calculated on the increased total.

Interest

Interest is the charge for borrowing money, typically expressed as a percentage of the principal amount per year.

Deposits

Funds placed into an account in a bank or other financial institution for safekeeping.

Compounded Quarterly

Interest on an investment or loan calculated four times per year, adding each quarter's interest to the principal for the calculation of the next quarter's interest.