If a Project's Cash Flows Exceed the Project's Incremental Cash

question 43

Multiple Choice

If a project's cash flows exceed the project's incremental cash flows,it is likely that the:

• A) project interacts with other aspects of the firm.
• B) project must have high depreciation expense.
• C) opportunity cost of capital must be high.
• D) project will have a negative NPV.

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Definitions:

Purely Competitive Industry

An industry characterized by many buyers and sellers, free entry and exit, and a product that is homogeneous, leading to the establishments of a market price for all participants.

Industry Elastic

The responsiveness of the quantity demanded or supplied of goods or services in an industry to changes in price.

Differentiated Product

A product that is distinct from its competitors because of features, branding, quality, or other attributes that make it unique in the eyes of consumers.

Purely Competitive Industry

An industry structure characterized by many small firms producing identical products with no single firm able to influence market prices.