Activity 2: Concept Check (Payback) Q1) Which of the following statements is FALSE? A Payback period refers to the number of periods take to recover the initial investment of a project. B The payback rule is reliable because it considers the time value of money and depends on the cost of capital. C The payback rule is primarily used because of its simplicity. D The payback rule is useful in cases where the cost of making an incorrect decision might not be large enough to justify the time required for calculating the NPV. SUBMIT

Which of the following statement is incorrect? O a. Payback period is defined as the number of years it takes for the cash flows from a project to recover the project's initialinvestment. O b.NPV method is better than payback period method in the way that NPV method accounts for the time value of moneywhereas payback period method does not. O c. In general, there can be as many lRRs as the number of times the project's cash flows change sign over time. O d. An internal rate of return (IRR) will always exist for an investment opportunity.

The Payback Period Rule states that a company will accept a project if:

Activity 2: Concept Check (IRR and NPV) Q3) Which of the following statements is FALSE? A The IRR investment rule states you should turn down any investment opportunity where the IRR is less than the opportunity cost of capital. B In a standalone project (independent project), the decision made by applying NPV investment rule is usually consistent with that of IRR investment rule. C Since the IRR rule is based upon the rate at which the NPV equals zero, like the NPV decision rule, the IRR decision rule will always identify the correct investment decisions. D There are situations in which multiple IRRs exist. SUBMIT

The discounted payback period is a capital budgeting criterion that accounts for:a.The time value of moneyb.The accounting rate of return (ARR)c.The payback periodd.The profitability index (PI)Clear my choice

In payback method one finds out *1 pointa. the period necessary to invest the cost of the systemb. the time required for the full benefits to accruec. the time at which benefits exceed costd. whether the system is able to payback amount invested