Which of the Following Statements Is CORRECT

question 58

Multiple Choice

Which of the following statements is CORRECT?

• A) The NPV method assumes that cash flows will be reinvested at the WACC,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 WACC,while the IRR method assumes reinvestment at the risk-free rate.
• D) The NPV method does not consider all relevant cash flows,particularly cash flows beyond the payback period.
• E) The IRR method does not consider all relevant cash flows,particularly cash flows beyond the payback period.

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Definitions:

WorldCom

A former American telecommunications company that became infamous for its massive accounting scandal, leading to its bankruptcy in 2002.

Enron

An American energy company known for one of the largest cases of corporate fraud and bankruptcy in history.

Sarbanes-Oxley Act

A U.S. law enacted in 2002 to protect investors by improving the accuracy and reliability of corporate disclosures.

Financial Reporting

The method of generating reports that reveal the financial condition of an organization to its management, investors, and governmental authorities.