Question

Which of the following ignores the Time Value of Money
(TVM)?

Net Present Value (NPV).

Undiscounted Payback Period.

Discounted Payback Period.

Profitability Index (Benefit-Cost Ratio).

Answer #1

**Answer - Undiscounted Payback Period**

NPV is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. Given we need to compute the present value, this uses TVM.

Discounted payback period also computes the present value of cash flows and hence use TVM.

Profitability index is is the ratio of payoff to investment of a proposed project. The payoff requires calculation of PV of the cash in flows and hence uses TVM.

When it comes to the Time Value of Money (TVM), which of the
following is considered to be the "Gold Standard?"
Internal Rate of Return (IRR).
Net Present Value (NPV).
Quick Ratio.
Discounted Payback Period

which of the following capital budgeting rules does not use the
time value of money concept?
a) NPV
b) IRR
c) the discounted payback period
d) the profitability index
E) the payback period
Please explain why
Thank you

The conventional payback period ignores the time value of money,
and this concerns Fuzzy Button’s CFO. He has now asked you to
compute Alpha’s discounted payback period, assuming the company has
a 7% cost of capital.
Complete the following table and perform any necessary
calculations. Round the discounted cash flow values to the nearest
whole dollar, and the discounted payback period to the nearest two
decimal places. Again, be sure to complete the entire table—even if
the values exceed the...

Which of the following investment rules does NOT use the time
value of money concept?
Select one:
a. Internal rate of return
b.The payback period
c.Profitability index
d. Net present value

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.

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 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

Which of the following statements is INCORRECT regarding
capital budgeting tools?
If the NPV is positive, the Profitability Index must be greater
than 1.
If the IRR is greater than the required return, then the NPV
will be positive.
The discounted payback period will always be smaller than the
payback period.
The NPV is the best capital budgeting tool, as a general
rule.

11. The NPV and payback period
What information does the payback period provide?
A project’s payback period (PB) indicates the number of years
required for a project to recover its initial investment using its
operating cash flows. As the theoretical soundness of the
conventional (undiscounted) PB technique was criticized, the model
was modified to incorporate the time value of money-adjusted
operating cash flows to create the discounted payback method. While
both payback models continue to reflect faulty ranking criteria,
they...

How would you go about estimating the Net Present Value (NPV) of
a college education by estimating the future earning with and
without a college education. Please show an example.
What is the relationship between Net Present Value (NPV) and
Profitability Index (PI)?

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