Question
1. When making capital-budgeting decisions, for a project to be ACCEPTED its NET PRESENT VALUE must be A. Equal to or greater than the cost
1. When making capital-budgeting decisions, for a project to be ACCEPTED its NET PRESENT VALUE must be
A. Equal to or greater than the cost of the initial investment
| B. Equal to or greater than the projects Internal Rate of Return (IRR) | ||
| C. | Equal to or greater than the projects payback period | |
| D. | Equal to or greater than 0 |
2. The payback method has two weaknesses. Identify BOTH WEAKNESSES below. You must correctly identify BOTH weaknesses for any credit on this question.
| The payback method presumes a discount rate | ||
| The payback method discounts future cash flows | ||
| The payback method does not discount future cash flows | ||
| The payback method ignores all cash flows after payback is reached | ||
| The payback method ignores all cash flows before payback is reached. |
3. What is the proper decision rule (or cutoff) for the payback method?
| A. If calculated payback is less than the useful life buy the machine. | ||
| B. If calculated payback is more than the useful life buy the machine. | ||
| C. | If calculated payback is greater than zero buy the machine. | |
| D. | If calculated payback is less than some corporate standard buy the machine. |
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