If Signalling Is Applied to Advertising

question 35

Multiple Choice

If signalling is applied to advertising:

• A)not all firms have the same incentive to advertise
• B)firms ignore the possibility of repeated customers
• C)it is irrational for a firm with a good product to pay for the cost of the signal
• D)a firm with a good product reaps a relatively small benefit from advertising

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Definitions:

Capital Investment

Funds invested in a business or enterprise with the intention of furthering its business objectives.

Capital Budgeting

The process of evaluating and selecting long-term investments compatible with the firm's goal of wealth maximization.

NPV

Short for Net Present Value, which is a financial metric used to evaluate the profitability of an investment or project, considering the time value of money.

IRR

Internal Rate of Return - a financial metric used to evaluate the profitability of potential investments, representing the discount rate that makes the net present value of all cash flows from a particular project equal to zero.