Explanation

The discount rate in IRR converts cash flows to present value.

It allowing for a comparison of the project's value in today's dollars.

It helps to calculate the present value of future cash flows.

Explanation

Sensitivity analysis assesses the impact of changes in variables on IRR.

It helping to identify potential risks and uncertainties that may affect the project's returns.

Explanation

COGS is calculated, reducing inventory value on the balance sheet.

Inventory (asset) decreases.

COGS (expense) is recorded on the income statement.

Net income (equity) decreases as a result of the COGS expense.

Explanation

• CEO salary is an administrative expense, not a direct cost of producing a product.

COGS (Cost of Goods Sold) includes only costs directly related to production, such as:

• Direct materials
• Direct labor
• Factory rent (or overhead costs)

Explanation

The primary difference between nominal and real interest rates is that:

• Real interest rates are adjusted for inflation.
• While nominal interest rates are not.
• Real interest rates reflect the actual purchasing power of the interest earned.
• While nominal interest rates do not account for inflation's erosion of purchasing power.

Explanation

Inflation erodes the purchasing power of interest earned.

As the increased amount of money (interest) can buy fewer goods and services.

Due to higher prices, reducing its real value.

Explanation

The formula for operating profit is: Gross profit - Operating expenses

Operating profit is also known as Earnings Before Interest and Taxes (EBIT).

It is the profit earned from a company's core operations.

It is calculated by subtracting operating expenses from gross profit.

Explanation

The relationship between IRR and project risk is direct.

A higher IRR typically indicates a project with higher potential returns, which often comes with increased risk.

Explanation

If the NPV is negative, a company should typically reject the project.

As it indicates that the investment is expected to result in a loss or a return less than the cost of capital.

Rejection of the project allows the company to allocate resources to more profitable opportunities.

Explanation

The closest option is $1,500.00.