Which of the Following Statements Is Most Correct

question 16

Multiple Choice

Which of the following statements is most correct?

• A) The NPV method assumes that cash flows will be reinvested at the cost of capital while the IRR method assumes reinvestment at the IRR.
• B) The NPV method assumes that cash flows will be reinvested at the risk free rate while the IRR method assumes reinvestment at the IRR.
• C) The NPV method assumes that cash flows will be reinvested at the cost of capital while the IRR method assumes reinvestment at the risk-free rate.
• D) The NPV method does not consider the inflation premium.
• E) The IRR method does not consider all relevant cash flows, and particularly cash flows beyond the payback period.

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Definitions:

Conversion

In accounting, it refers to the process of changing raw materials into finished products, including the costs associated with such a transformation.

Weighted-Average Method

An inventory costing method that calculates the cost of units for sale during a period by averaging the costs of all similar goods available.

Equivalent Units

A concept used in cost accounting to standardize the amounts of work done on incomplete units, to fully completed units, thereby enabling a consistent cost analysis.

Overhead Allocation

The process of assigning indirect costs of production, such as utilities and rent, to specific cost objects like products or departments.