Which of the Following Statements Best Describes a Situation Involving

question 59

Multiple Choice

Which of the following statements best describes a situation involving sunk costs?

• A)An example of a sunk cost is the cost associated with restoring the site of a strip mine once the ore has been depleted.
• B)Sunk costs must be considered if the IRR method is used but not if the firm relies on the NPV method.
• C)A good example of a sunk cost is money that a banking corporation spent last year to investigate the site for a new office, then expensed those funds for tax purposes, and now is deciding whether to go forward with the project.
• D)If sunk costs are considered and reflected in a project's cash flows, then the project's calculated NPV will be higher than it otherwise would be.

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Definitions:

Discount Rate

The Discount Rate is the interest rate used to determine the present value of future cash flows in discounted cash flow analysis.

Predicting Variables

Variables in statistical models that are used to predict outcomes or responses of interest.

Regression Analysis

A statistical method used to model the relationship between a dependent variable and one or more independent variables.

Dependent Variables

Variables in an experiment that are expected to change as a result of an experimental manipulation of the independent variable(s).