Explanation

IRR assumes that interim cash flows are reinvested at the same rate as the project's IRR, which is unlikely.

This limitation can lead to inaccurate projections and investment decisions.

Explanation

COGS would be higher when Using LIFO in a period of rising prices.

As the most recent and expensive purchases are sold first.

This results in a higher cost of goods sold, reducing gross profit and net income.

Explanation

Direct labor is a cost associated with the production process.

It is typically included in the COGS of a manufacturing company.

However, a retail company does not produce goods, so direct labor is not a cost they incur.

Explanation

The Average Cost method assigns the total cost of goods available for sale evenly across all units, so that each unit has the same cost.

This method is used when it is not possible to track the cost of individual units.

It is assumed that the cost of all units is average.

Explanation

COGS stands for Cost of Goods Sold.

It represents the direct costs associated with producing and selling a company's products or services.

This includes expenses such as:

• Raw materials and labor
• Overhead costs
• Manufacturing expenses

Explanation

Amortization refers to the process of gradually reducing a debt through regular loan payments.

It allocating a portion of each payment to interest and the remaining amount to the principal, until the loan is fully repaid.

Explanation

The principal is the initial amount of money borrowed or invested.

It serves as the basis for calculating interest.

It is the original sum of money before any interest is earned or paid.

Explanation

When interest is compounded quarterly, the interest is calculated and added to the principal every quarter.

In this case, the interest rate is 5% per year, which is equivalent to 1.25% per quarter.

After one year, the total interest earned would be $51.16, making the final amount $1000 + $51.16 = $1051.16.

Explanation

A negative NPV indicates that a project is not profitable.

It means that the present value of its costs exceeds the present value of its benefits.

It suggesting that investing in the project would result in a loss.

Explanation

IRR's main criticism is that it assumes reinvestment at the IRR rate.

It may be unrealistic, leading to overestimation of returns.

This making it a less reliable evaluation metric.