1. An investment of $2,000 produces a net cash flow of $800 in the first year, and...
Question:
1. An investment of $2,000 produces a net cash flow of $800 in the first year, and $2,000 in the second year. What is the payback period?
a. 1.60 years
b. 1.25 years
c. 0.50 years
d. 1.10 years
2. Which of the following is a deficiency of the payback period?
a. It helps control the risk of obsolescence.
b. It ignores the financial performance of the project beyond the payback period.
c. It is a rough measure of the uncertainty of future cash flows.
d. It considers the time value of money.
3. Assume there are two competing projects, X and Y. Project X has a NPV of $1,500 and an IRR of 16%. Project Y has a NPV of $1,000 and an IRR of 20%. Which of the following is true?
a. Neither project should be chosen.
b. It is not possible to choose between the two projects.
c. Project Y should be chosen because it has a higher IRR.
d. Project X should be chosen because it has a higher NPV.
Step by Step Answer:
Cornerstones of Cost Management
ISBN: 978-1305970663
4th edition
Authors: Don R. Hansen, Maryanne M. Mowen