When Using Simulation to Analyse a Large Capital Project,the Decision

question 18

Multiple Choice

When using simulation to analyse a large capital project,the decision rule is

• A)there is no clear-cut decision rule,but the probabilities will produce a more informed decision.
• B)accept the project if the probability of a positive NPV is greater than 50%.
• C)reject the project if the probability of a negative NPV is greater than 5%.
• D)reject the project if the probability of a negative NPV is greater than 16%

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Definitions:

Cumulative Effect

The total impact of a change in accounting principle or correction of an error reported in a single period's financial statements.

Change In Accounting Principle

An adjustment made to the accounting methods used by a company, often requiring retrospective application to prior period financial statements.

Net Income

The remaining earnings of a firm once subtracting every expense and tax from its total income.

Extraordinary Item

Events or transactions that are distinct from the ordinary activities of a company, which are unusual in nature and infrequent in occurrence.