Question

True or False: Suppose a firm's CFO thinks that an externality is present in a project, but that it cannot be quantified with any precision ¾ estimates of its effect would really just be guesses. In this case, the externality should be ignored ¾ i.e., not considered at all ¾ because if it were considered it would make the analysis appear more precise than it really is.

Answer 1

Answer:

False

Explanation:

Externalities can be defined as the impact a cost or benefit has on a third party that is not directly related to the transaction.

When externality is ignored, there is a possibility of making a very substantial error. Externality should never be ignored if it is said to be important.

When the importance of the externality is considered, it should be discussed and not ignored. The externality should be analyzed by taking different situations into consideration.

According to the CFO, the externality shouldn't be considered because when the externality is considered it would make the analysis appear more precise than it really is. Even if the statement were to be true, in this case, externality cannot be ignored because it is present present in the project

Answer 2

Answer:

False

Explanation:

Suppose a firm's CFO thinks that an externality is present in a project, but that it cannot be quantified with any precision ¾ estimates of its effect would really just be guesses. In this case, the externality should be ignored ¾ i.e., not considered at all ¾ because if it were considered it would make the analysis appear more precise than it really is. This is a false statement.