Explanation

A project with a positive NPV may be rejected due to high initial investment or better alternative projects with higher NPVs.

If other projects have higher NPVs, they may be preferred.

Explanation

• Depreciation expense is a non-cash item and is not a component of the IRR calculation.

The components of IRR calculation are:

• Initial investment (cost)
• Future cash inflows (benefits)
• Discount rate (opportunity cost of capital)

Explanation

IRR considers all cash inflows and outflows of a project.

It providing a comprehensive picture of its potential returns.

This strength enables investors to evaluate projects based on their overall profitability.

Explanation

IRR is the rate at which cash inflows equal cash outflows, making the net present value (NPV) zero.

It's the discount rate that balances the costs and benefits of an investment, revealing the rate of return required to break even.

Explanation

IRR (Internal Rate of Return) is a financial metric that calculates the rate of return of an investment or project.

It is based on the cash inflows and outflows.

It's the rate at which the net present value (NPV) of the investment becomes zero.

IRR is used to evaluate the profitability and feasibility of investments.

Explanation

The choice of inventory costing method (such as FIFO, LIFO, or Average Cost) affects the calculation of:

• COGS (Cost of Goods Sold)
• Gross profit
• Net income

Operating expenses are not directly affected by the inventory costing method.

As they are unrelated to the cost of inventory.

Explanation

Sales commissions are a selling and marketing expense, not a direct cost of producing the goods.

They are paid to salespeople or agents for selling the goods, and are not directly related to the production process.

Explanation

The calculation of compound interest is affected by the principal amount, interest rate, and number of compounding periods, but not by the inflation rate.

Inflation rate affects the purchasing power of the interest earned, but not the calculation of compound interest itself.

Explanation

P(1 + r)^n: Future value formula for principal P, rate r, and time n, including total interest.

This formula calculates the future value with annual compounding.

Explanation

When interest is compounded more frequently, the interest earned increases.

Because the interest is calculated and added to the principal more often.

It creating a snowball effect that leads to higher earnings over time.