The Stocks of Building Firms

question 3

Multiple Choice

The stocks of building firms
1) are considered to be cyclical
2) are sensitive to changes in interest rates
3) generally have stable earnings

• A) 1 and 2
• B) 1 and 3
• C) 2 and 3
• D) all of these choices

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Definitions:

Sunk Cost

A cost that has already been incurred and cannot be recovered.

Stand-Alone Principle

A method of evaluating investment projects as if they were the only project the company is undertaking, assessing their viability on their individual merits.

Depreciation Tax Shield

The reduction in income tax that results from the allowance for depreciation, which can be considered a non-cash expense that decreases taxable income.

Equivalent Annual Cost

Equivalent annual cost is a financial analysis tool used to compare the cost effectiveness of different projects or investments with differing lifespans by calculating their equivalent cost per year.