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 discount rate is used in NPV calculations.

It reflecting the cost of capital, opportunity cost, or risk.

It is used to discount cash flows to their present value for a more accurate evaluation.

Explanation

NPV is often compared with IRR for project evaluation.

Because both methods assess a project's profitability.

But NPV measures the project's total value in today's dollars.

While IRR measures the project's rate of return.

Explanation

COGS (Cost of Goods Sold) is a direct cost associated with producing and selling a company's products or services.

It is listed on the income statement as a subtraction from revenue to calculate gross profit.

Explanation

LIFO (Last-In, First-Out) assumes that the newest inventory items (those purchased or produced most recently) are sold first.

This method is commonly used in industries where prices are rising or inventory is non-perishable.