Which of the Following Statements Is Correct

question 104

Multiple Choice

Which of the following statements is correct?

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

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Definitions:

Average Fixed Cost

The fixed expenses of a business spread out over the total number of units produced, decreasing as production increases.

Total Revenues

The total income generated by a firm from its sales activity, calculated by multiplying the selling price by the quantity sold.

Nonprice Competition

Strategies employed by companies to differentiate their products or services from those of competitors, other than through lowering prices, such as marketing and product quality improvements.

Perfectly Elastic

Describes a market scenario in which the quantity demanded or supplied changes infinitely in response to any change in price.