Adverse effect on other part of firms overall operations

Assignment Help Financial Management

Reference no: EM13970841

Which of the following statements is CORRECT?

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.

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 decline.

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.

Both the NPV and IRR methods deal correctly with externalities, even if the externalities are not specifically identified. However, the payback method does not.

Identifying an externality can never lead to an increase in the calculated NPV.

Reference no: EM13970841

Questions Cloud

Financing alternative a breakeven point exists : For every financing alternative, a breakeven point exists where A. the dilutive effect on EPS from issuing new shares is located B. Interest payments on new debt is found C. A equals B D. None of the above.

Present value calculations : Present value calculations: A. can help the creation of value. B. can provide managers with a means of identifying the best investment choices. C. do not help in the creation of value. D. A and B. E. B and C.

A differential analysis : A differential analysis: A. can be used to compare an alternative to the status quo. B. can be used to compare any set of alternatives. C. is easier to comprehend if a consistent frame of reference is employed. D. B and C. E. A, B, and C.

Operating at full capacity : Use the AFN equation to estimate Hatfield's required new external capital for 2014 if the sales growth rate is 10%. Assume that the firm's 2013 ratios will remain the same in 2014. (Hint: Hatfield was operating at full capacity in 2013.)

Adverse effect on other part of firms overall operations : 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. An example of an extern..

What fraction of all elevator rails will meet specifications : An elevator company produces elevator rails. To meet specifications, an elevator rail must be between 0.995 inches and 1.005 inches in diameter. Suppose that the diameter of an elevator rail follows a normal random variable with mean of 1 inch and st..

Cash flows-suppose the firm uses the npv decision rule : For the given cash flows, suppose the firm uses the NPV decision rule. Year Cash Flow 0 –$ 162,000 1 54,000 2 85,000 3 69,000 Requirement 1: At a required return of 8 percent, what is the NPV of the project Requirement 2: At a required return of 20 p..

Literature on management therioes might enhance performance : In most cases accountants and finance directors do not work in isolation from other parts of the company. Discuss to what extent an understanding of the literature on management therioes might enhance their performance.

What is the projects IRR : A firm evaluates all of its projects by applying the IRR rule. Year Cash Flow 0 –$ 146,000 1 70,000 2 69,000 3 53,000 Requirement 1: What is the project's IRR? Requirement 2: If the required return is 16 percent, should the firm accept the project?

User Account

All Pages