COST ACCOUNTING
CAPITAL BUDGETING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It does not allow for projects to be ranked.
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It has an inadequate reinvestment assumption.
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It is likely that there will be more than one NPV for a project.
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All of the above
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Detailed explanation-1: -Answer and Explanation: The false statement is A) Reject projects with a NPV of zero, as accepting them is equivalent to reducing firm value. The NPV is a method to calculate the current value of all future cash flows of a project to evaluate its profitability.
Detailed explanation-2: -Answer and Explanation: The correct answer is A) Accept a project if NPV > cost of investment. The net present value estimates the current worth of a project by taking the present value of the future cash flows minus the cost of investment.
Detailed explanation-3: -The discount rate may reflect your cost of capital or the returns available on alternative investments of comparable risk. If the NPV of a project or investment is positive, it means its rate of return will be above the discount rate.
Detailed explanation-4: -The IRR must be greater than 0 is true if the Net Present Value (NPV) of a positive.