The Net Present Value Method Differs from the Internal Rate

question 34

Multiple Choice

The net present value method differs from the internal rate of return method in that:

• A)the net present value method discounts cash flows using the risk-free rate of return and the internal rate of return method does not.
• B)the internal rate of return method finds the rate of return that results in a zero net present value.
• C)both methods yield similar conclusions for mutually exclusive projects.
• D)the net present value method discounts cash flows by the required rate of return,whereas the internal rate of return method does not take into account the time value of money.

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Definitions:

Labor Rate Variance

The difference between the actual cost of labor and the budgeted or standard cost, based on the labor rate.

Actual Rate

A term that can refer to the real, observed interest rate, exchange rate, or other financial variable in contrast to a theoretical or estimated rate.

Standard Hours

The expected time it should take to complete a specific task or produce a given quantity of goods under normal conditions.

Retained Earnings

The portion of a company's profits that is kept or retained and not paid out as dividends to shareholders.