Suppose We Compare the Difference Between the NPV of a Financial

question 24

Multiple Choice

Suppose we compare the difference between the NPV of a financial model in which the means are entered for all input random variables and the NPV of a financial model in which the most likely values are entered for all input random variables.If we see a large difference between the NPV's,this illustrates:

• A) the value at risk (VAR)
• B) the effect of randomness
• C) the flaw of averages
• D) the bias of the analyst
• E) None of these options

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Definitions:

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.

Unit Costs of Production

The total expense incurred by a company to produce, store, and sell one unit of a particular product or service.

Diseconomies of Scale

The condition in which a firm’s costs per unit of output increase as the firm increases in size or scale of operation.