Which of the Following Statements Regarding the Use of Historical

question 63

Multiple Choice

Which of the following statements regarding the use of historical costs and current costs to compute return on investment (ROI) is(are) true?
(A) Historical costs are based on the original costs to acquire a long-term asset, while current costs represent the costs to replace the long-term asset.
(B) For a specific multiple-period project, the return on investment (ROI) computed using current costs will generally be less than the ROI computed using historical costs.

• A) Only (A) is true.
• B) Only (B) is true.
• C) Both of these are true.
• D) Neither of these is true.

---

Definitions:

Equivalent Annual Annuity

The constant annual cash flow for a certain period of time that has the same present value as a series of different cash flows.

Mutually Exclusive

Refers to scenarios where the acceptance of one alternative means the other cannot be chosen.

NPV

NPV (Net Present Value) is a calculation used to assess the profitability of a project or investment by summing the present values of all cash inflows and outflows associated with it.

Replacement Chain Method

A decision analysis for evaluating the replacement of assets, considering the optimal time to replace each asset.