The Internal Rate of Return Is Unreliable as an Indicator

question 28

Multiple Choice

The internal rate of return is unreliable as an indicator of whether or not an investment should be accepted given which one of the following?

• A)One of the time periods within the investment period has a cash flow equal to zero.
• B)The initial cash flow is negative.
• C)The investment has cash inflows that occur after the required payback period.
• D)The investment is mutually exclusive with another investment of a different size.
• E)The cash flows are conventional.

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Definitions:

FOB Shipping Point

A shipping term indicating that the buyer is responsible for the shipping costs and owns the goods in transit once they leave the seller's premises.

Cost Flow Assumption

An accounting method used to value inventory and determine the cost of goods sold, such as FIFO (First-In, First-Out) or LIFO (Last-In, First-Out).

Net Realizable Value

The estimated selling price of goods, minus the costs of their sale or completion, used in determining the value of inventory on hand.

LIFO

An inventory valuation method standing for Last-In, First-Out, where the most recently acquired items are assumed to be sold or used first.