If Financial Markets Were Not Efficient,it Would Be Easier for Firms

question 40

Multiple Choice

If financial markets were not efficient,it would be easier for firms to:

• A) finance investments in a zero-NPV transaction.
• B) finance investments in a positive NPV transaction.
• C) totally avoid the need for external financing.
• D) finance investments in a negative NPV transaction.

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Definitions:

Quantity Discount

A reduction in price offered to a buyer when purchasing goods in larger quantities, serving as an incentive for bulk purchases.

Carrying Cost

The total cost of holding a particular asset on a company’s books, which can include storage, interest, depreciation, and insurance.

Distilled Water

Distilled water is water that has been purified through distillation, a process that involves boiling the water and then condensing the steam back into liquid.

EOQ

Economic Order Quantity (EOQ) is a decision tool used in inventory management to determine the optimal order size that minimizes the sum of ordering and holding costs.