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Neo, Bachelor's Degree
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Experience:  BS Accounting
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Compute The Payback Period For A Project With The Following

Resolved Question:

16) Compute the payback period for a project with the following cash flows, if the company’s discount rate is 12%.
Initial outlay = $450
Cash flows:
Year 1 = $325 
Year 2 = $65
Year 3 = $100

A. 3.43 years
B. 3.17 years
C. 2.88 years
D. 2.6 years

17) For the NPV criteria, a project is acceptable if the NPV is __________, while for the profitability index, a project is acceptable if the profitability index is __________.
A. less than zero, greater than the required return
B. greater than zero, greater than one
C. greater than one, greater than zero
D. greater than zero, less than one

18) Which of the following is considered to be a deficiency of the IRR?
A. It fails to properly rank capital projects.
B. It could produce more than one rate of return.
C. It fails to utilize the time value of money.
D. It is not useful in accounting for risk in capital budgeting.

19) The firm should accept independent projects if
A. the payback is less than the IRR
B. the profitability index is greater than 1.0
C. the IRR is positive
D. the NPV is greater than the discounted payback

20) The most expensive source of capital is
A. preferred stock
B. new common stock
C. debt
D. retained earnings

Submitted: 4 years ago.
Category: Business and Finance Homework
Expert:  Neo replied 4 years ago.

Good day!

16. D. 2.6 years
17. B. greater than zero, greater than one
18. B. It could produce more than one rate of return.
19. B. the profitability index is greater than 1.0
20. B. new common stock

Thank you so much! :)

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