Question

True or False?

1. Payback period fails to account for different levels of risk. ​

2. Based on the IRR decision rule, you reject a project if the IRR is less than 0. ​

3. The net present value tells you how much the value of a firm is expected to change by accepting and implementing the project.

4. The training required in order to operate new equipment is included in the capital budgeting calculation.

Answer 1

1. Payback period fails to account for different levels of risk. ​

TRUE

Payback period doesn't account for the risk in cash flows beyond the acceptable payback period.

2. Based on the IRR decision rule, you reject a project if the IRR is less than 0. ​

FALSE

Based on the IRR decision rule, you reject a project if the IRR is less than the required rate of return such as the WACC.

3. The net present value tells you how much the value of a firm is expected to change by accepting and implementing the project.

TRUE

A positive NPV adds value to the firm, while a negative NPV decreases the value of the firm.

4. The training required in order to operate new equipment is included in the capital budgeting calculation.

TRUE

The training costs to operate new equipment are part of capital budgeting calculation.