Explanation

NPV is a versatile tool that allows for comparison of projects with different characteristics, including:

• Projects with different lifespans
• Projects with the same initial investment
• Projects with different cash flows

Explanation

The basic formula for NPV is:

NPV = ∑ (CFt / (1 + r)^t) - Initial Investment

Where:

• CFt = Cash flow at time t
• r = Discount rate
• t = Time period

Explanation

The discount rate represents the minimum rate of return that investors require to justify investing in a project.

It taking into account the risk and opportunity cost of their investment.

Explanation

The Periodic inventory system requires a physical count of inventory to determine COGS.

As inventory levels are not continuously tracked.

A physical count is necessary to calculate COGS and update inventory records.

Explanation

During periods of inflation, prices tend to rise, and LIFO allows a company to match the most recent.

It higher-cost inventory purchases with current sales.

It resulting in higher COGS (Cost of Goods Sold) and lower taxable income.

Explanation

The formula to calculate COGS is:

COGS = BI + P - EI

Where:

• BI = Beginning Inventory (starting inventory balance)
• P = Purchases (inventory acquired during the period)
• EI = Ending Inventory (ending inventory balance)

Explanation

The annual interest rate is typically expressed as a percentage, such as 4% or 8%.

It represents the rate at which interest is earned or paid on a loan or investment over a year.

This percentage represents a fraction of the principal amount.

Explanation

In NPV, 'net' means the difference between cash inflows and outflows.

It considering both positive and negative cash flows, like investment, expenses, and revenue.

Explanation

COGS directly impacts the gross margin ratio: higher COGS lowers the ratio, while lower COGS increases it.

Gross margin ratio = (revenue - COGS) / revenue, with higher ratios indicating greater profitability.

Explanation

NPV requires a predetermined discount rate.

It can be subjective and may not accurately reflect project risk or opportunity cost.

It emphasizing the importance of selecting an appropriate discount rate for accurate calculations.