Explanation

IRR assumes cash flows are reinvested at the same rate as the IRR.

This assumption compounds the project's value, generating additional returns from reinvested returns.

Explanation

• Factory rent is an indirect cost, as it is not directly related to the production process.

Direct costs included in COGS are:

• Direct materials
• Direct labor
• Manufacturing supplies

Explanation

In finance, EAR stands for Effective Annual Rate.

It is also referred to as the Effective Annual Interest Rate.

It is the rate of interest that is paid on a loan or investment after the compounding period is considered.

Explanation

IRR assumes that cash inflows and outflows occur at the end of each period.

It simplifies the calculation but may not reflect the actual timing of cash flows in real-world projects.

Explanation

The discount rate used in IRR is the rate of return required by investors or the cost of capital.

It represents the minimum return requires to justify investing in a project.

It is used to discount the cash flows to their present value.

Explanation

Direct labor is a variable cost, meaning it changes in direct proportion to changes in production volume.

It is a cost directly related to the production process and is included in COGS.

Explanation

COGS increases if a company uses more expensive raw materials.

Higher raw material costs lead to higher production costs, resulting in increased COGS.

Explanation

FIFO (First-In, First-Out) assumes that the oldest inventory items (those purchased or produced first) are sold first.

This method is commonly used in industries where inventory is perishable or has a limited shelf life.

Explanation

Yield to maturity (YTM): Interest rate that equals present value of cash flows to market price.

It representing total return on investment if held to maturity.

Explanation

Sensitivity analysis assesses how changes in variables (discount rate, cash flows, costs) impact NPV.

It helping understand project risk and uncertainty.

It providing insights into potential outcomes.