Which of the Following Statements Is CORRECT

question 53

Multiple Choice

Which of the following statements is CORRECT?

• A) If the cost of capital declines, this lowers a project's NPV.
• B) The NPV method is regarded by most academics as being the best indicator of a project's profitability; hence, most academics recommend that firms use only this one method.
• C) A project's NPV depends on the total amount of cash flows the project produces, but because the cash flows are discounted at the cost of capital, it does not matter if the cash flows occur early or late in the project's life.
• D) The NPV and IRR methods may give different recommendations regarding which of two mutually exclusive projects should be accepted, but they always give the same recommendation regarding the acceptability of a normal, independent project.
• E) The NPV method was once the favorite of academics and business executives, but today most authorities regard the MIRR as being the best indicator of a project's profitability.

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Definitions:

Actual Costs

The real expenses incurred during a specific period, as opposed to budgeted or estimated costs.

Cost Variance

The difference between the actual cost incurred and the standard or budgeted cost, used in budgeting and financial analysis.

Standard Costs

Predetermined costs to manufacture a product, serving as a benchmark for measuring performance.

Actual Costs

The real costs incurred by a business during a specific period, as opposed to budgeted or forecasted costs.