Which of the Following Statements Is CORRECT

question 61

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:

Market Demand

The total quantity of a product that consumers are willing and able to purchase at various prices during a specific time period.

Marginal Costs

The additional financial burden of creating one more unit of a product or service.

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, indicating its responsiveness to price changes.

Supply Curve

A visual diagram that illustrates the connection between a product's price and the amount of the product that sellers are ready and able to offer.