Which of the Following Statements Is CORRECT

question 33

Multiple Choice

Which of the following statements is CORRECT?

• A) an example of an externality is a situation where a bank opens a new office, and that new office causes deposits in the bank's other offices to increase.
• B) the npv method automatically deals correctly with externalities, even if the externalities are not specifically identified, but the irr method does not. this is another reason to favor the npv.
• C) both the npv and irr methods deal correctly with externalities, even if the externalities are not specifically identified. however, the payback method does not.
• D) identifying an externality can never lead to an increase in the calculated npv.
• E) an externality is a situation where a project would have an adverse effect on some other part of the firm's overall operations. if the project would have a favorable effect on other operations, then this is not an externality.

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Definitions:

Compounded Annually

Interest that is calculated and added to the principal once every year.

Compounded Quarterly

A compound interest calculation where the frequency of compounding is every three months, affecting the overall growth of an investment or debt.

Periodic Interest Rate

The rate of interest earned in one compounding period.

Payment Interval

The length of time between successive payments in an annuity.