Which of the Following Statements Is CORRECT

question 50

Multiple Choice

Which of the following statements is CORRECT?

• A) Sunk costs must be considered if the IRR method is used but not if the firm relies on the NPV method.
• B) A good example of a sunk cost is a situation where a bank opens a new office, and that new office leads to a decline in deposits of the bank's other offices.
• C) A good example of a sunk cost is money that a banking corporation spent last year to investigate the site for a new office, then expensed that cost for tax purposes, and now is deciding whether to go forward with the project.
• D) If sunk costs are considered and reflected in a project's cash flows, then the project's calculated NPV will be higher than it otherwise would be.
• E) An example of a sunk cost is the cost associated with restoring the site of a strip mine once the ore has been depleted.

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Definitions:

Demand

The quantity of a good or service that consumers are willing and able to purchase at various prices during a given time period.

Marketplace Conditions

The various factors and conditions that affect the dynamics of buyers and sellers in a particular market, including competition, customer demand, and regulatory environment.

Competitive Markets

Markets where multiple firms are competing against each other to sell their products or services to the same group of consumers.

Monopolistic Competition

A market structure characterized by many firms selling products that are similar but not identical, leading to competition based on product differentiation.