Question

The payback method Multiple Choice A. requires each firm to set a firmwide cash flow cutoff...

The payback method

Multiple Choice

A. requires each firm to set a firmwide cash flow cutoff period.

B. superior to the net present value method.

C. ignores the time value of money.

D. discounts all cash flows properly.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

THE PAYBACK PERIOD

CORRECT ANSWER : C : IGNORES TIME VALUE OF MONEY

PAYBACK PERIOD IS DEFINED AS TIME PERIOD REQUIRED TO RECOVER THE INVESTMENT

SO IF INVESTMENT = 100000 AND CFAT PER YEAR = 25000, THEN WE CAN SAY PAYBACK PERIOD = 100000/25000 = 4 YEARS.

IT DOES NOT TAKE INTO THE CASHFLOWS THAT ARE RECEIVED AFTER PAYBACK PERIOD. IT IGNORES THE VALUE OF MONEY.

SO ALL CFATS ARE TREATED EQUALLY WHETHER RECEIVED TODAY OR TOMORROW

NPV (NET PRESENT VALUE) TAKES INTO ACCOUNT TIME VALUE OF MONEY & DISCOUNTS ALL CFAT PROPERLY, SO NPV IS SUPERIOR THAN PAYBACK PERIOD

FIRST OPTION IS IRRELEVANT AS NOTHING IS SPECIED RELATED TO CUTOFF PERIOF IN PAYBACK PERIOD DEFINITION

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Net present value _____________. Select one: a. Requires the firm set an arbitrary cutoff point for...
Net present value _____________. Select one: a. Requires the firm set an arbitrary cutoff point for determining whether an investment is acceptable b. Is equal to zero when the discount rate used is less than the IRR c. Is simplified by the fact that future cash flows are easy to estimate d. Is equal to the initial investment in a project e. Compares project cost to the present value of the project benefits
1. What is the payback period for the following set of cash flows? Year Cash Flow...
1. What is the payback period for the following set of cash flows? Year Cash Flow 0 −$ 8,000        1 2,800        2 1,000        3 2,900        4 2,100        Multiple Choice 3.57 years 3.80 years 3.64 years 3.92 years 3.62 years 2. An investment project provides cash inflows of $650 per year for 8 years. a. What is the project payback period if the initial cost is $3,250?    b. What is the project payback period if...
Which of the following statements concerning the payback period is NOT true     A.   The payback...
Which of the following statements concerning the payback period is NOT true     A.   The payback period is simple to calculate and understand.     B.   The payback period measures the time that a project will take to generate enough cash flows to cover the initial investment.     C.   The payback period ignores cash flows after the payback period has been achieved.     D.   The payback period takes account of the time value of money.
Four of the following statements are truly disadvantages of the regular payback method, but one is...
Four of the following statements are truly disadvantages of the regular payback method, but one is not a disadvantage of this method. Which one is NOT a disadvantage of the payback method? a. Ignores cash flows beyond the payback period. b. Does not directly account for the time value of money. c. Does not provide any indication regarding a project’s liquidity or risk. d. Lacks an objective, market-determined benchmark for making decisions. e. Does not take account of differences in...
1. Multiple internal rates or return occur when: Select one: A. The project’s cash flows are...
1. Multiple internal rates or return occur when: Select one: A. The project’s cash flows are larger earlier in the life of the project. B. The project’s cash flows are larger later in the life of the project. C. When the project’s cash flows experience normal cash flow streams (i.e. one sign change). D. When the project’s cash flows experience non-normal cash flow streams (i.e. two or more sign changes). E. When the IRR is equal to the WACC. 2....
Multiple choices questions The net present value method a) is consistent with the goal of shareholder...
Multiple choices questions The net present value method a) is consistent with the goal of shareholder wealth maximization. b) recognizes the time value of money. c) uses all of a project's cash flows. d) all of the above The type of security which represents ownership in a firm with priority for dividends is called _____ stock.          a)      convertible          b)      senior            c)      common          d)      preferred
The value of a firm.... Multiple Choice A. is unaffected by the value of any one...
The value of a firm.... Multiple Choice A. is unaffected by the value of any one individual project. B. is equal to the sum of all of the future cash flows derived from the firm’s projects. C. equals the sum of the individual values of the firm’s projects and divisions. D. increases anytime a project with a zero net present value is accepted. E. increases when a new project with a negative net present value is accepted.
Which of the following is not true of the payback period method? Group of answer choices...
Which of the following is not true of the payback period method? Group of answer choices There is no objective criterion for what is an acceptable payback period. It fails to take into account a project’s net cash flows. It fails to take into account the time value of money. It fails to take into account a project’s net cash flows after the payback period.
Cash Payback Period, Net Present Value Method, and Analysis McMorris Publications Inc. is considering two new...
Cash Payback Period, Net Present Value Method, and Analysis McMorris Publications Inc. is considering two new magazine products. The estimated net cash flows from each product are as follows: Year Canadian Cycling European Hiking 1 $173,000 $145,000 2 142,000 170,000 3 122,000 117,000 4 111,000 82,000 5 35,000 69,000 Total $583,000 $583,000 Each product requires an investment of $315,000. A rate of 10% has been selected for the net present value analysis. . Compute the net present value. Use the...
Concerning payback, which of the following statements is true? a) Payback is no longer used since...
Concerning payback, which of the following statements is true? a) Payback is no longer used since it ignores the time value of money. b) Payback can only be used on simple projects since it cannot deal with cash flow. c) Payback period varies inversely with the benefit-cost ratio: the shorter the payback period, the higher the benefit-cost. d) Payback is only used for capital intensive projects.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT