Which of the Following Statements Is Correct

question 9

Multiple Choice

Which of the following statements is correct?

• A) Because discounted payback takes account of the cost of capital, a project's discounted payback is normally shorter than its regular payback.
• B) The NPV and IRR methods use the same basic equation, but in the NPV method the discount rate is specified and the equation is solved for NPV, while in the IRR method the NPV is set equal to zero and the discount rate is found.
• C) If the cost of capital is less than the crossover rate for two mutually exclusive projects' NPV profiles, a NPV/IRR conflict will not occur.
• D) If you are choosing between two projects which have the same life, and if their NPV profiles cross, then the smaller project will probably be the one with the steeper NPV profile.
• E) If the cost of capital is relatively high, this will favor larger, longer-term projects over smaller, shorter-term alternatives because it is good to earn high rates on larger amounts over longer periods.

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Definitions:

Student Enrollment

The process by which students register for and commit to participating in educational programs or courses at an institution.

Average Total Cost

The total cost of production (fixed and variable costs combined) divided by the number of units produced.

Minimum Efficient Scale

The smallest quantity of output at which long-run average cost reaches its lowest level, allowing a firm to fully exploit economies of scale.

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.