The correct option that determines the best method to select the best project based on cost-benefit analysis.
Answer to Problem 6MCQ
Option c is correct.
Explanation of Solution
Explanation for the correct option:
c.
While selecting one project among various alternatives, one should determine the net value of the project.
Explanation for incorrect options:
a.
If a project’s present value of
b.
If the
d.
If the interest rate or the discount rate of a project is the highest then it cannot be termed as the best project because after a certain discounting rate the value of the project’s net cash flows starts deteriorating. Therefore, option d is incorrect.
e.
Both need to be considered i.e. project’s cost and the project’s cash inflows are required to determine the best project. Therefore, option e is incorrect.
Interest rates: The rates that were charged by the investor who is ready to lend his/her money for a certain period of time to the borrower.
Present value of money: This is the concept that is used by every investor or financial dealer where the value of the dollar received today is compared with the value of the dollar that is expected to be received later by using interest rates.
Chapter 24 Solutions
Krugman's Economics For The Ap® Course
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