Question

In some cases, the payback reciprocal can be used to estimate the:

a. internal rate of return

b. accounting rate of return

c. profitability index

d. net present value

e. net initial investment

Answer #1

The payback reciprocal is a crude estimate of the rate of return for a project or investment.

The payback reciprocal is computed by dividing the digit "1" by a project's payback period expressed in years.

For example, if a project's payback period is 4 years, the payback reciprocal is 1 divided by 4 = 0.25 = 25%.

This reciprocal yields an approximation of the rate of return on an investment, though only under the following circumstances:

- Annual cash flows are uniformly even over the lifetime of the investment
- The cash flows from the project will continue forever

Since it is quite unlikely that cash flows will continue
uninterrupted for a long ways into the future, it is more realistic
to instead evaluate a project based on the **net present
value method or the internal rate of return.**

11.
The discount rate that makes the net present value of an
investment exactly equal to zero is the:
A)
Payback period.
B)
Internal rate of return.
C)
Average accounting return.
D)
Profitability index.
E)
Discounted payback period.
12.
The internal rate of return (IRR) rule can be best stated
as:
A)
An investment is acceptable if its IRR is exactly equal to its
net present value (NPV).
B)
An investment is acceptable if its IRR is exactly equal to...

Which of the following statements is correct:
A. projects with unconventional cash flows have multiple
internal rates of return
B. if 2 projects are mutually exclusive, you should select the
project with the shortest payback period
C. If the IRR exceeds the required return, the profitability
index will be less than 1.0
D. the Profitability index will be greater than 1.0 when the net
present value is negative
E. when the internal rate of return is greater than the required...

1. Under conditions of capital rationing (i.e., limited capital
funds are available), the optimal allocation of funds to capital
investment projects occurs when management uses which one of the
following decision models?
a. Internal Rate of Return (IRR)
b. Discounted accounting rate of return
c. Profitability Index (PI)
d. Discounted Payback (WRONG ANSWER)
e. Modified Internal Rate of Return (MIRR).
2. The payback period for evaluating capital investment projects
emphasizes:
a. Average net income divided by average investment
b. Average...

Which is the best technique for decision?
1. payback period
2. Discounted payback period
3. Net present value
4. profitability index
5. Internal rate of return

A
project's payback period can be evaluated by comparing the
a. payback period to the net present value
b. payback period to the project's useful life.
c. payback period to accounting rate of return
d. payback period to the required rate of return

he internal rate of return on a project is 9%. Which of
the following (is) are TRUE if the project is assigned a 8.56%
discount rate?
1. The project will have a negative net present value.
2. The profitability index will be greater than
1.0.
3. The initial investment is less than the market value
of the project.
4. The project will have a negative effect on
shareholders if it is accepted.
Select one:
a. 1, 2, 3, 4...

PA11-1 Calculating Accounting Rate of Return, Payback Period,
Net Present Value, Estimating Internal Rate of Return [LO 11-1,
11-2, 11-3, 11-4]
Balloons By Sunset (BBS) is considering the purchase of two new
hot air balloons so that it can expand its desert sunset tours.
Various information about the proposed investment
follows:
Initial
investment (for two hot air balloons)
$
385,000
Useful life
8
years
Salvage
value
$
41,000
Annual net
income generated
31,185
BBS’s cost of
capital
7
%
Assume...

You have just completed an analysis of an investment. You used
Net Present Value, Profitability Index and Internal Rate of Return.
Your boss has just asked you for the payback. What will you tell
him/her?

Question 1:All of the following are considered cash inflows
except the:
A. future residual value of the capital investment
B. future additional operating costs of the investment
C. future savings in ongoing cash operating costs
D. future cash revenue generated by the investment
Question 2:Capital budgeting methods which incorporate the time
value of money include the
A. average rate of return
B. accounting rate of return
C. net present value method
D. payback method
Question 3: Net present value is...

Requirements: Using Microsoft Excel to calculate and analyze the
Net Present Value (NPV), Internal Rate of Return (IRR), Accounting
Rate of Return and Payback Period of the following investment
(chapter 20, text).
Initial investment
$ 12,950
Estimated life
5 years
Annual cash inflows
$ 6,000
Cost of capital
12%

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 6 minutes ago

asked 12 minutes ago

asked 15 minutes ago

asked 16 minutes ago

asked 18 minutes ago

asked 23 minutes ago

asked 31 minutes ago

asked 31 minutes ago

asked 33 minutes ago

asked 42 minutes ago

asked 42 minutes ago

asked 43 minutes ago