FIN 534 - Homework Chapter 11

Chapter 11

1. Which of the following statements is CORRECT?

a. 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.

b. 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.

c. Both the NPV and IRR methods deal correctly with externalities, even if the externalities

are not specifically identified. However, the payback method does not.

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

e. An externality is a situation where a project would have an adverse effect on some other

part of the...