Which of the Following Statements Is CORRECT

question 53

Multiple Choice

Which of the following statements is CORRECT?

• A) If the cost of capital declines, this lowers a project's NPV.
• B) The NPV method is regarded by most academics as being the best indicator of a project's profitability; hence, most academics recommend that firms use only this one method.
• C) A project's NPV depends on the total amount of cash flows the project produces, but because the cash flows are discounted at the WACC, it does not matter if the cash flows occur early or late in the project's life.
• D) The NPV and IRR methods may give different recommendations regarding which of two mutually exclusive projects should be accepted, but they always give the same recommendation regarding the acceptability of a normal, independent project.
• E) The NPV method was once the favorite of academics and business executives, but today most authorities regard the MIRR as being the best indicator of a project's profitability.

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Definitions:

Minimum Efficient Scale

The smallest scale of production a firm can achieve while still taking full advantage of economies of scale in terms of costs per unit.

Output

The quantity of goods or services produced by a firm, sector, or economy within a certain period.

Overhead Costs

Expenses not directly tied to the production of goods or services, such as rent, utilities, and administrative salaries.

Newspaper Industry

Refers to the sector of the economy that is engaged in the production and distribution of newspapers, involving both print and, increasingly, digital platforms.