Which of the Following Statements Is False

question 34

Multiple Choice

Which of the following statements is false?

• A) The hurdle rate rule for projects with the option to delay uses a lower discount rate than the cost of capital to compute the NPV, but then applies the regular NPV rule: invest whenever the NPV calculated using this lower discount rate is positive.
• B) While using a hurdle rate rule for deciding when to invest might be a cost-effective way to make investment decisions, it is important to remember that this rule does not provide an accurate measure of value.
• C) When the cash flows are constant and perpetual, and the reason to wait derives solely from interest rate uncertainty, the hurdle rate rule of thumb is always exact. However, when these conditions are not satisfied, the rule of thumb merely approximates the correct decision.
• D) When a firm faces the same uncertainty for most of its investment decisions, using a single profitability index criterion for all projects can provide a useful rule of thumb to account for cash flow uncertainty.

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Definitions:

Cognitive Development

The process by which individuals acquire and develop the ability to think, understand, and reason over time.

Social Referencing

A baby’s adjustment of its reactions to objects or events based on feedback provided by a caregiver. For example, a baby may look at a caregiver’s facial expression before approaching a new toy.

Intergenerational Transmission

When parents repeat with their children the patterns of trauma, rejection, and maltreatment that they experienced as children from their own parents.

Social Referencing

This is the process by which people look to others in an environment to get cues on how to understand or react to uncertain situations or events.