Which of the Following Statements Is CORRECT

question 103

Multiple Choice

Which of the following statements is CORRECT?

• A) The NPV method assumes that cash flows will be reinvested at the risk-free rate, while the IRR method assumes reinvestment at the IRR.
• B) The NPV method assumes that cash flows will be reinvested at the cost of capital, while the IRR method assumes reinvestment at the risk-free rate.
• C) The NPV method does not consider all relevant cash flows, particularly cash flows beyond the payback period.
• D) The IRR method does not consider all relevant cash flows, particularly cash flows beyond the payback period.
• E) The NPV method assumes that cash flows will be reinvested at the cost of capital, while the IRR method assumes reinvestment at the IRR.

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Definitions:

Aggregate Demand

The total demand for goods and services within a particular market or economy at current price levels.

Price Level

The price level is an index that measures the average prices of goods and services in an economy over a period of time.

Real GDP

measures the value of all goods and services produced by an economy in a specific period, adjusted for inflation.

Government Expenditures

The total amount of money the government spends, including spending on goods, services, and transfer payments.