Which of the Following Is True About Perpetuities

question 10

Multiple Choice

Which of the following is true about perpetuities?

• A) All else equal, the present value of a perpetuity is higher when the periodic cash flow is higher.
• B) All else equal, the present value of a perpetuity is higher when the interest rate is lower.
• C) If two perpetuities have the same present value and the same interest rate, they must have the same cash flows.
• D) All of the above are true statements.

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Definitions:

Unit Product Cost

The total cost to produce a single unit of product, including direct materials, direct labor, and allocated overhead, crucial for pricing and profitability analysis.

Variable Costing

A costing method that includes only variable costs (costs that change with production volume) in product costs and treats fixed costs as period costs.

Unit Product Cost

The total cost assigned to a single unit of product, encompassing direct materials, direct labor, and manufacturing overhead.

Variable Costing

A costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in product costs.