Which of the Following Statements Is the Correct Treatment of Finance

question 24

Multiple Choice

Which of the following statements is the correct treatment of finance charges in project evaluation?

• A)Finance charges should be included in a project's net cash flows and in the discount rate.
• B)Finance charges should be included in a project's net cash flows and excluded from the discount rate.
• C)Finance charges should be excluded from a project's net cash flows and included in the discount rate.
• D)None of the given options.

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Definitions:

Entry Barriers

Obstacles that prevent new competitors from easily entering an industry or area of business, including high startup costs, licensing requirements, and access to technology.

Zero Economic Profit

A situation where a firm's total revenue is exactly equal to its total opportunity costs, indicating no excess returns over the cost of capital.

Long Run

A period in which all factors of production and costs are variable, allowing for adjustments in production to meet changes in the market or economy.

Price-taker Market

A market condition where individual buyers or sellers have no power to influence the price of the good or service, typically in a perfectly competitive market.