Which of the Following Statements Is False

question 51

Multiple Choice

Which of the following statements is false?

• A) Traditionally, managers have used the equivalent annual benefit method to choose between projects of different lives.
• B) The equivalent annual benefit method ignores the value of any real options because it assumes that the projects will always be replaced at their original terms.
• C) If the future costs (or benefits) are certain with mutually exclusive projects, then we must use a real options approach to determine the correct decision.
• D) The equivalent annual benefit method accounts for the difference in project lengths by calculating the constant payment over the life of the project that is equivalent to receiving the NPV today and then selecting the project with the higher equivalent annual benefit.

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Definitions:

Allowance For Doubtful Accounts

An accounting estimate for the amount of receivables that may not be collectible, reducing the reported value of accounts receivable to reflect potential losses.

Accounts Receivable

Debts due to a business from its clients for products or services that have been provided or consumed but remain unpaid.

Accrual Basis

A method of accounting that records revenues and expenses when they are earned or incurred, regardless of when cash is received or paid.

Cash Basis

An accounting method where revenues and expenses are recorded only when cash is received or paid, regardless of when the transactions occurred.