In the Duration Matching Method of Evaluating Financing,the Implicit Assumption

question 18

Multiple Choice

In the duration matching method of evaluating financing,the implicit assumption is that:

• A)assets will be used by a firm for a longer period of time than it takes the firm to repay the loan to purchase those assets.
• B)asset value will always offset the amount of the liabilities that were incurred to acquire those assets.
• C)it is possible to acquire assets that will be productive for exactly the amount of time that it takes to repay the loan to acquire those assets.
• D)interest rates affect assets and liabilities in the same way and to the same extent.

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Definitions:

Redesigned Facility

A facility or plant that has been modified or rebuilt to improve efficiency, functionality, or to meet new standards.

Production Workers

Employees involved directly in the manufacturing process, contributing to the creation of goods.

Implicit Costs

Refer to the opportunity costs of using resources owned by the business for its operations, without any explicit financial payment.

Economic Profit

The difference between total revenues and total costs, including both explicit and implicit costs, measuring the financial success of a business beyond normal profit margins.