Accounting Principles

question 37

Multiple Choice

Accounting principles:

• A)should be accepted by people and organisations who need financial information to make decisions.
• B)explain financial phenomena.
• C)are similar to natural laws,like the law of gravity.
• D)apply only to large business organisations.

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Definitions:

NPV (Net Present Value)

A method used in capital budgeting to evaluate the profitability of an investment or project, calculated by subtracting the total present values of cash outflows from the total present values of cash inflows.

IRR (Internal Rate of Return)

A financial metric used to estimate the profitability of potential investments, calculated as the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Discount Rate

The interest rate charged to commercial banks and other financial institutions for loans received from the central bank's discount window.

High-risk Projects

High-risk projects are those that come with a greater uncertainty regarding outcomes, potentially offering higher returns alongside increased potential for loss.