The Process of Comparing the Cost of an Asset to the Value

question 89

Multiple Choice

The process of comparing the cost of an asset to the value of expected cash inflows, after adjusting for the time value of money, is called

• A) Acquisition analysis
• B) Present value analysis
• C) Capital budgeting
• D) Long-term asset budgeting

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Definitions:

Variable Costs

Expenditures that adjust based on the degree of operational activity or the volume of goods manufactured.

Fixed Costs

Fixed costs are business expenses that remain constant regardless of the level of production or sales activities.

Contribution Margin Ratio

A metric that shows what percentage of sales revenue is available to cover variable costs and contribute to fixed costs after all variable expenses have been covered.

Cost Structure

The composition of fixed and variable costs that a company incurs during the production of goods or services, affecting profitability.