Question

The discounted payback rule may cause:

Both some positive net present value projects to be rejected; and some projects with negative net present values to be accepted.

projects to be incorrectly accepted due to ignoring the time value of money.

some positive net present value projects to be rejected. some projects with negative net present values to be accepted.

the most liquid projects to be rejected in favor of less liquid projects.

Answer #1

Dear student.

Answer is some positive net present value projects to be rejected. some projects with negative net present values to be accepted

Projects with positive NPV would be rejected if they do not meet the discounted payback criteria e.g. If a project has positive NPV but discounted payback period of 5 years then it may be rejected it the company wants discounted pBP of 3 years

Similarly if project has negative NPV i.e. negative cash flow occur after the discounted PBP

Rossiter Restaurants is evaluating several new projects. Applying
the discounted payback decision rule to all projects may cause:
A) some positive net present value projects to be
rejected
B) some projects to be accepted which would otherwise be
rejected under the payback rule
C) Projects to be incorrectly accepted due to ignoring the
time value of money
D) The most liquid projects to be rejected in favor of less
liquid projects.
E) a firm to become more long-term focused.

The
NPV rule states that, “An investment should be accepted if the net
present value ( NPV) is positive and rejected if it is negative.”
What does an NPV of zero mean? If you were a decision-maker faced
with a project with a zero NPV ( or very close to zero) what would
you do? Why?

In your homework for Chapter 9, you used the following
techniques for analyzing projects:
Payback Rule
Discounted Payback Period
Net Present Value
Internal Rate of Return
Why must corporate managers use multiple techniques of
project evaluation? Which technique is most commonly used and
why? Describe several ways you may be able to use the techniques
above as you progress in your professional career. (Identify
specific types of projects you could analyze and discuss the
advantages and disadvantages of using the...

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...

Choose the most accurate statement regarding the net present
value of an investment or
a financing project:
A) A financing project should be accepted if, and only if, the
NPV is exactly equal to zero.
B) An investment project should be accepted only if the NPV is
equal to the initial cash
flow.
C)Any type of project should be accepted if the NPV is positive
and rejected if it is negative
D) An investment project that has positive cash flows...

Question) The situation a firm faces when it has positive net
present value projects but cannot obtain financing for those
projects is referred to as:
a. sensitivity planning.
b. a contingency situation.
c. capital rationing.
d. a discounted cash flow.
e. a sunk cost situation.

Which of the following is not a net present value (NPV)
decision rule?
A When choosing among
independent projects, select the one with the highest rate of
return
B If an independent
investment’s NPV is negative, reject the project
C If an independent
investment’s NPV is positive, accept the project
D When choosing among
mutually exclusive projects, select the one with the highest
NPV

Project A has a net present value of $1,500, a payback period of
2 years, and an internal rate of return of 12%. Project
B has a net present value of $1,800, a payback period of 4 years,
and an internal rate of return of 10%. Project C has a
netpresent value of $1,750, a payback period of 3 years, and an
internal rate of return of 11%. If the projects are
mutually exclusive, which project should be undertaken?
A.
Project A because...

Julia evaluated two independent projects using all the capital
budgeting techniques mentioned in the book, and she concluded that
both projects are acceptable. According to this information, which
of the following statements is correct?
a. Each project has a discounted payback (DPB) that is greater
than its useful life (n).
b. Both projects should be purchased.
c. Both projects have internal rates of return (IRRs) that are
less than the firm's required rate of return (r).
d. One project has...

The net present value (NPV) method estimates how much a
potential project will contribute to ____ and it
is the best selection criterion. The _____ the
NPV, the more value the project adds; and added value means a ____
stock price.
CFt is the expected cash flow at Time t, r is the
project's risk-adjusted cost of capital, and N is its life, and
cash outflows are treated as negative cash flows. The NPV
calculation assumes that cash inflows can...

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