Which of the Following Statements Is FALSE

question 1

Multiple Choice

Which of the following statements is FALSE?

• A)Traditionally,managers have used the equivalent annual benefit method to choose between projects of different lives.
• B)The equivalent annual benefit method ignores the value of any real options because it assumes that the projects will always be replaced at their original terms.
• C)If the future costs (or benefits)are certain with mutually exclusive projects,then we must use a real options approach to determine the correct decision.
• D)The equivalent annual benefit method accounts for the difference in project lengths by calculating the constant payment over the life of the project that is equivalent to receiving the NPV today and then selecting the project with the higher equivalent annual benefit.

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Definitions:

Rational Decisions

Choices made by individuals that align with their own self-interest and are based on an evaluation of the costs and benefits of the action.

Marginal Costs

The extra financial burden of generating one additional unit of a good or service.

Marginal Benefits

The incremental satisfaction or advantage obtained from the consumption of an additional unit of a good or service.

Marginal Cost

Marginal cost is the increase in total production cost that arises from producing one additional unit of a good or service.