Which of the Following Contract Types Is Most Appropriate When

question 29

Multiple Choice

Which of the following contract types is most appropriate when costs are NOT well known and the buyer absorbs the cost risk?

• A) Firm-Fixed-Price (FFP)
• B) Fixed-Price-Incentive-Firm (FPIF)
• C) Cost-Plus-Fixed-Fee (CPFF)
• D) Time and Material (T&M)

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Definitions:

Internal Rate of Return (IRR)

The interest rate that results in a net present value of zero for all cash flows associated with a specific project.

Net Present Value (NPV)

A financial metric that calculates the difference between the present value of cash inflows and outflows over a period of time. It is used to assess the profitability of an investment.

Weighted Average Cost of Capital (WACC)

This metric calculates a firm's cost of capital, considering the proportionate costs of each component of the capital structure.

Internal Rate of Return (IRR)

The discount rate at which the net present value of all cash flows (positive and negative) from a project or investment equals zero.