Podcast
Questions and Answers
Which economic concept should a manager apply to compare future earnings from two investment options?
Which economic concept should a manager apply to compare future earnings from two investment options?
- Incremental principle
- Marginal cost
- Opportunity cost
- Present discounted value (correct)
What is the main purpose of applying present discounted value in investment evaluations?
What is the main purpose of applying present discounted value in investment evaluations?
- To calculate potential losses from other investments
- To assess the profitability of marginal returns
- To determine the cost of production
- To evaluate the current worth of future cash flows (correct)
In the context of comparing two investment options, which of the following concepts is NOT relevant?
In the context of comparing two investment options, which of the following concepts is NOT relevant?
- Marginal cost
- Opportunity cost
- Present discounted value
- Market segmentation (correct)
When discussing investment options with different time horizons, which principle is crucial for evaluating potential financial outcomes?
When discussing investment options with different time horizons, which principle is crucial for evaluating potential financial outcomes?
Which term best describes the potential financial advantage missed when choosing one investment over another?
Which term best describes the potential financial advantage missed when choosing one investment over another?
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Study Notes
Comparing Investment Options
- Present discounted value (PDV) is the most suitable economic concept for comparing investments with different time horizons.
- PDV calculates the present value of future cash flows by discounting them at an appropriate rate, allowing for a fair comparison of projects with different durations.
Other Economic Concepts
- Marginal cost refers to the additional cost incurred when producing one extra unit of a good or service.
- Incremental principle analyzes the change in profit or cost resulting from a particular decision.
- Opportunity cost represents the value of the best alternative forgone when making a decision.
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