The Primary Reason That the NPV Method Is Conceptually Superior

question 83

True/False

The primary reason that the NPV method is conceptually superior to the IRR method for evaluating mutually exclusive investments is that multiple IRRs may exist, and when that happens, we don't know which IRR is relevant.

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Definitions:

Product Cost Method

An accounting method used to assign costs to inventory and cost of goods sold, including direct materials, direct labor, and manufacturing overhead.

Differential Cost

The difference in total cost between two alternatives in making a business decision.

Differential Revenue

The difference in revenue generated from two different business actions or decisions, helping to assess the financial impact of each choice.

Contribution Margin

The difference between sales revenue and variable costs, used to cover fixed costs and to generate profit.