When the Net Present Value (NPV)of a Project Is Calculated

question 45

Multiple Choice

When the net present value (NPV) of a project is calculated based on the assumption that the cash flows occurred at the end of the year when they actually occurred uniformly throughout each year,the NPV will:

• A)Not be in error.
• B)Be slightly overstated.
• C)Be unusable for actual decision-making.
• D)Be slightly understated but probably usable.
• E)Produce an error the direction of which is undeterminable.

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Definitions:

Dummy Coding

A statistical technique used in regression analysis where categorical variables are converted into a series of binary variables.

Categorical Variables

Variables that represent types or categories and are typically qualitative in nature.

Predictor Variable

A variable that is used in statistical models to forecast or predict the outcome of a dependent variable.

Regression Formula

An equation that describes the statistical relationship between one or more predictor variables and the response variable.