Which of the Following Statements Is CORRECT

question 22

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:

Price Elasticity

A formula that calculates the demand's sensitivity to the good's price variations.

Substitutes

Products or services that can be used in place of each other, offering consumers alternatives if prices change.

Time Period

A specific interval of time that is defined for a particular study, event, or analysis.

Total Revenue

A rephrased definition: The cumulative income of a business from its sale of products or services, equivalent to the price of goods sold multiplied by the quantity sold.