The Net Present Value Method Is a Better Method of Evaluation

question 26

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) none of the other answers are correct.

---

Definitions:

Variable Overhead Costs

Costs that fluctuate with production volume, such as utilities or raw materials, and are part of the total overhead costs.

Direct Labor Time

Direct labor time is the amount of time spent by workers directly involved in the production of goods or services, excluding time of indirect labor like maintenance or supervision.

Direct Materials Budget

A financial plan that estimates the raw materials needed for production and the associated costs.

Production Budget

An estimate of the number of units that must be produced during a period to meet expected sales demand and to satisfy ending inventory requirements.