Which of the Following Statements Is Correct

question 3

Multiple Choice

Which of the following statements is correct?

• A)Only incremental cash flows are relevant in project analysis, and the proper incremental cash flows are the reported accounting profits, which form the best basis for investor and managerial decisions.
• B)It is unrealistic to believe that increases in net operating working capital required at the start of an expansion project can be recovered at the project's completion. Working capital like inventory is almost always used up in operations. Thus, cash flows associated with working capital are included only at the start of a project's life.
• C)If a terminal loss or CCA recapture could occur at the conclusion of the business, no subsequent cash flows would be received.
• D)Changes in net operating working capital refer to changes in current assets and current liabilities, not to changes in long-term assets and liabilities, hence they are not considered in a capital budgeting analysis.

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Definitions:

Rationing Coupons

Tickets or certificates that allow the holder to purchase a certain amount of a product or service, used especially in times of shortages to ensure equitable distribution.

Misallocation

The inefficient distribution or use of resources in an economy, often resulting from market failures or government intervention.

Resources

Assets, materials, and inputs needed for the production of goods and services, including time, labor, capital, and natural resources.

Excess Demand

A market condition where the quantity demanded of a good exceeds the quantity supplied, leading to shortages.