Given That the Net Present Value (NPV) Is Generally Considered

question 245

Multiple Choice

Given that the net present value (NPV) is generally considered to be the best method of analysis, why should you still use the other methods?

• A) The other methods help validate whether or not the results from the net present value analysis are reliable.
• B) You need to use the other methods since conventional practice dictates that you only accept projects after you have generated three accept indicators.
• C) You need to use other methods because the net present value method is unreliable when a project has unconventional cash flows.
• D) The average accounting return must always indicate acceptance since this is the best method from a financial perspective.
• E) The discounted payback method must always be computed to determine if a project returns a positive cash flow since NPV does not measure this aspect of a project.

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Definitions:

Direct Method

A cost allocation method that assigns service departments’ costs directly to producing departments without any intermediate steps.

Support Department Costs

Expenses incurred by service departments within a company that do not directly contribute to making a product but are necessary for the business to operate.

Assembly Department

A section within a manufacturing facility where components are assembled into final products, often involving both human labor and machinery.

Direct Method

A costing method that directly allocates service department costs to producing departments without apportioning them among the service departments themselves.