Which of the Following Statements Is CORRECT

question 9

Multiple Choice

Which of the following statements is CORRECT?

• A) in a capital budgeting analysis where part of the funds used to finance the project would be raised as debt, failure to include interest expense as a cost when determining the project's cash flows will lead to a downward bias in the npv.
• B) the existence of any type of "externality" will reduce the calculated npv versus the npv that would exist without the externality.
• C) if one of the assets to be used by a potential project is already owned by the firm, and if that asset could be sold or leased to another firm if the new project were not undertaken, then the net after-tax proceeds that could be obtained should be charged as a cost to the project under consideration.
• D) if one of the assets to be used by a potential project is already owned by the firm but is not being used, then any costs associated with that asset is a sunk cost and should be ignored.
• E) in a capital budgeting analysis where part of the funds used to finance the project would be raised as debt, failure to include interest expense as a cost when determining the project's cash flows will lead to an upward bias in the npv.

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Definitions:

Arbitration Clause

A clause in a contract providing that, in case of a dispute, the parties will determine their rights through arbitration rather than through the judicial system.

Dispute

A disagreement or conflict between parties that can be resolved through negotiation, mediation, or legal action.

Negotiation

A dialogue between two or more parties intended to reach a beneficial outcome over a conflict, disagreement, or to forge agreements while addressing each party's interests.

Binding Mediation

A dispute resolution process where an impartial mediator makes decisions that are enforceable and legally binding on the parties involved.