A Project That Adds Zero Economic Value

question 35

Multiple Choice

A project that adds zero economic value:

• A) has a positive NPV.
• B) has an NPV of zero.
• C) has a negative NPV.
• D)is at the accounting break-even point.

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Definitions:

Replacement Cost

The cost to replace an item or asset at current prices, disregarding its original purchase price or accumulated depreciation.

Operating Margin

A profitability measure calculated as operating income divided by revenue, showing the percentage of profits generated from operations before taxes and interest.

Variable Costing

An accounting method that only includes variable production costs (costs that change with the level of output) in the cost of goods sold and treats fixed costs as period costs.

Absorption Costing

A pricing technique that integrates all expenses related to production, such as direct materials, direct labor, along with both variable and fixed overhead costs, into a product's cost.