quiz 5 --1 - 1. C.

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1. C. a and b are not correct because sunk cost is cost that was expended in the past and cannot be recovered  regardless of whether the company decides to go forward with the project. D is not correct because sunk cost  is not included in the NPV calculation. E is not correct; it’s an externality. 2. B.  A is not correct because both adverse and favorable effects are considered externality. C and D is not correct  because NPV, IRR, and payback method all deal with externalities. E is not correct because if the externality is  favorable, it can lead to an increase in NPV. 3. E. A and B are not correct because cannibalization is not against competitors or customers. C and D are not correct  because the cash flow considering cannibalization will be lower than NPV that does not recognize the effects, so  the cash flow should be decreased to offset the effects.
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This note was uploaded on 12/30/2010 for the course FIN 5405 taught by Professor Tapley during the Spring '08 term at University of Florida.

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quiz 5 --1 - 1. C.

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