Suppose the Firm's Required Rate of Return Is Stated in Nominal

question 85

Multiple Choice

Suppose the firm's required rate of return is stated in nominal terms,but the project's expected cash flows are expressed in real dollars.In this situation,other things held constant,the calculated NPV would

• A) Be correct.
• B) Be biased downward.
• C) Be biased upward.
• D) Possibly have a bias,but it could be upward or downward.
• E) More information is needed;otherwise,we can make no reasonable statement.

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Definitions:

Masks Reality

Hides or disguises true nature, conditions, or situations, often making something appear different from what it really is.

Evaluative Role

The function of assessing or judging the value, quality, or importance of something based on established criteria.

Analysis

Identifies the intended and actual inferential relationships among statements, questions, concepts, descriptions, or other forms of representation intended to express belief, judgment, experiences, reasons, information, or opinions.

Justified

Having valid reasons or evidence to support a claim, action, or belief.