Which of the Following Is True of the Certainty Equivalent

question 103

Multiple Choice

Which of the following is true of the certainty equivalent approach? ​

• A)It asks the decision makers to consider each forecast cash flow individually and come up with a lower, risk free cash flow that is equally acceptable.
• B)It is accomplished by regressing the division's accounting return on equity in previous years against the return on a major stock market index.
• C)It selects worst, middle, and best outcomes for each cash flow and computes NPV for a variety of combinations.
• D)It models cash flows as random variables and repeatedly calculates NPV.

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Definitions:

Gallon of Gasoline

A unit of measurement equal to 3.785 liters used for measuring the volume of gasoline.

Substitution Effect

Variations in consumption habits influenced by the change in prices of goods in comparison to each other, leading to a preference shift among consumers from one good to another.

Cheaper

Describes goods or services being offered at a low price, especially in relation to comparable items.

More Expensive

Refers to items or services that have a higher cost or price in comparison to others.