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Which of the following statements is correct?

An externality is a situation where a project would have an adverse effect on some other part of the firm’s overall operations. If the project would have a favorable effect on other operations, then this is not an externality.

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

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

Both the NPV and IRR methods deal correctly with externalities, even if the externalities are not specifically identified. However, the payback method does not

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

Respuesta :

The correct statement is 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. Thus 2nd option is correct.

What is the meaning of Externality?

Externality refers to the outcome of the situation which is affected by the Industrial and commercial activity of the organizations which is not reflected in the market price.

The proper answer is an illustration of an externality is when a bank establishes a new location and the new location results in lower deposits in the bank's other locations.

Therefore, the second choice is the best one.

Learn more about bank deposits here:

https://brainly.com/question/2507231

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