According to the Theory of Purchasing Power Parity,if the Price

question 58

Multiple Choice

According to the theory of purchasing power parity,if the price of haircuts in the United States is lower than those in Mexico,

• A) U.S. exports should increase.
• B) there would be little effect in both currency and services markets.
• C) the value of the peso should fall by a large amount.
• D) the value of the dollar should rise by a large amount.
• E) Mexican imports should rise.

---

Definitions:

Net Present Value (NPV)

A financial metric that calculates the difference between the present value of cash inflows and outflows over a period of time. It is used to assess the profitability of an investment.

Weighted Average Cost of Capital (WACC)

This metric calculates a firm's cost of capital, considering the proportionate costs of each component of the capital structure.

Internal Rate of Return (IRR)

The discount rate at which the net present value of all cash flows (positive and negative) from a project or investment equals zero.

Weighted Average Cost of Capital (WACC)

WACC represents the average rate that a company is expected to pay to finance its assets, weighted by the proportion of debt and equity financing.