Which of the Following Statements Is FALSE

question 21

Multiple Choice

Which of the following statements is FALSE?

• A)The firm deducts a fraction of the investments in plant,property,and equipment each year as depreciation.
• B)If securities are fairly priced,the net present value of a fixed set of cash flows is independent of how those cash flows are financed.
• C)Sunk cost fallacy is a term used to describe the tendency of people to ignore sunk costs in capital budgeting analysis.
• D)A good rule to remember is that if our decision does not affect a cash flow then the cash flow should not affect our decision.

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Definitions:

Income Items

Various types of earnings, from employment, investments, or other sources, that must be reported on a tax return.

Investor

An individual or institution that allocates capital to investments with the expectation of receiving financial returns.

Materially Participate

Regular, continuous, and substantial involvement in business operations, determining if a tax loss is passive or nonpassive.

Passive Income

Earnings derived from a rental property, limited partnership, or other enterprises in which a person is not actively involved.