Which of the Following Statements Is False

question 17

Multiple Choice

Which of the following statements is false?

• A) The ultimate goal in capital budgeting is to determine the effect of the decision to take a particular project on the firm's cash flows.
• B) To the extent that overhead costs are fixed and will be incurred in any case, they are incremental to the project and should be included in the capital budgeting analysis.
• C) Unlevered Net Income = (Revenue - Costs - Depreciation) × (1 - τ_c).
• D) Earnings are not cash flows.

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Definitions:

Pre-contractual Problem

Issues that arise before a contract is finalized, often related to information asymmetry or negotiating terms.

Post-contractual Problem

Issues or disputes that arise after a contract has been signed and during its execution period.

Agency Costs

Costs incurred in principal–agent relationships; these costs are associated with moral hazard and adverse selection problems.

Adverse Selection

A situation in economics and insurance where the party on one side of the deal has more information than the party on the other side, leading to an imbalance and potentially unfair outcomes.