Quiz Ch 11 – Revealing Forecasting Errors in NPV Estimates
Principles of Corporate Finance
Brealey, Myers, and Allen
13th Edition
To identify forecasting errors within NPV estimates, the most effective method is to examine:
To identify forecasting errors within NPV estimates, the most effective method is to examine:
True or false: In certain cases, the advantages of implementing new technology are entirely nullified by the losses experienced in existing plants.
True or false: Although financial managers can observe market values for real assets like real estate and precious metals, these values are not considered in capital budgeting analysis, where discounted cash flow is the sole appropriate tool.
True or false: Economic rents are typically attainable by most firms in a competitive market.
True or false: In a competitive market, reducing prices typically does NOT result in the creation of economic rents.
True or false: If a firm anticipates long-term economic rents from a specific project, it is probable that it is neglecting the impacts of competition.
True or false: As per Michael Porter, managers can gain a competitive edge in their industry through cost leadership, product differentiation, and focusing on a specific market niche.
True or false: The projected increase in the price of a mineral, minus extraction costs, is expected to match the cost of capital.
True or false: In the case of a stock with no dividends, the current price is considered the present value of next year’s price.
True or false: The Net Present Value (NPV) of an investment represents the discounted value of the expected economic rents it is anticipated to generate.