Which of the Following Statements Is CORRECT

question 68

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 decline.
• 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:

International Trade

The trade of products and services across the borders of different countries or territories.

Consumer Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service versus the total amount that they actually pay.

Producer Surplus

The gap between the price producers are willing to accept for offering a good or service and the actual price they receive.

World Price

The global equilibrium price of a good or service determined by worldwide supply and demand.