Which of the Following Statements Regarding Historical Costs Is Correct

question 76

Multiple Choice

Which of the following statements regarding historical costs is correct?

• A)Historical costs represent what the firm paid for an input when it was purchased, adjusted for inflation.
• B)Historical costs vary depending on the method of depreciation a firm uses.
• C)Historical costs are a good indicator of the current opportunity cost of a piece of capital.
• D)Using historical costs can cause true economic profit to be under or over stated.

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Definitions:

MIRR

Modified Internal Rate of Return, which adjusts for the differences in reinvestment rates of a project's cash flows.

Project

A temporary endeavor undertaken to create a unique product, service, or result with defined objectives and constraints.

WACC

Weighted Average Cost of Capital; a measure used to calculate the average cost of a company's financing sources, including equity and debt.

NPV

Net Present Value; a calculation that compares the present value of cash inflows with the present value of cash outflows over a period of time to assess profitability.