Which of the Following Is a Disadvantage of the Net

question 115

Multiple Choice

Which of the following is a disadvantage of the Net Present Value rule?

• A) can be misleading if inflows come before outflows
• B) not necessarily consistent with maximizing shareholder wealth
• C) ignores cash flows after the cutoff point
• D) relies on accurate estimate of the discount rate

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Definitions:

Fixed Costs

Costs that do not vary with the level of production or sales activity, such as rent, salaries, and insurance premiums.

Period Costs

Costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued.

Segmented Income Statements

Financial statements that divide a company's financial performance into segments, such as departments or product lines, to assess each segment's profitability separately.

CM Ratio

The contribution margin ratio, calculated as the contribution margin divided by net sales revenue, indicating the proportion of sales revenue available to cover fixed costs and generate profit.