The Following Actions by Managers Are Examples of Overinvestment

question 40

Multiple Choice

The following actions by managers are examples of overinvestment:
i.entrenching investments; II) empire building; III) investing beyond the point where NPV falls to zero

• A)I only
• B)II only
• C)I and II only
• D)I,II,and III

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Definitions:

Discount Rates

The rate of interest applied in discounted cash flow (DCF) analysis to calculate the current value of future cash flows.

NPV

NPV - Net Present Value, a financial metric used to evaluate the profitability of an investment or project, calculating the difference between the present value of cash inflows and outflows.

Option

A financial derivative that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a certain date.

Contract

A legally binding agreement between two or more parties that creates mutual obligations enforceable by law.