The Net Present Value Method Is a Better Method of Evaluation

question 99

Multiple Choice

The net present value method is a better method of evaluation than the internal rate of return method because:

• A) the NPV method discounts cash flows at the internal rate of return.
• B) the NPV method is a more liberal method of analysis.
• C) the NPV method discounts cash flows at higher than the firm's cost of capital.
• D) the NPV method allows the financial manager to select between mutually exclusive projects.

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Definitions:

Conversion Costs

Costs related to turning raw materials into finished goods, typically including direct labor and manufacturing overhead.

Weighted-Average Method

A method of inventory costing or process costing that averages the costs of all goods available for sale or production, assigning an average cost to each unit.

Process Costing System

An accounting system used to track and allocate costs of production to individual units of output in industries where production is continuous and similar items are produced.

Conversion Costs

The costs associated with converting raw materials into finished products, typically including labor and overhead expenses.