Xavier Is Shown Two Balls of Play-Doh That Are Identical

question 111

Short Answer

Xavier is shown two balls of Play-Doh that are identical in size. One of the balls is smashed flat and Xavier is asked if one ball contains more Play-Doh than the other. He responds, "No, they are still the same. See, I can roll this one back into a ball." Xavier understands ______.

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Definitions:

Internal Rate

Often referring to the Internal Rate of Return (IRR), it's the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Cash Flows

The total amount of money being transferred into and out of a business, especially as affecting liquidity.

Outlay

The amount of money spent on a particular expense or investment.

Payback Period

The time it takes for an investment to generate an amount of income or cash equal to the cost of the investment.