8. Which of the following are disadvantages of the payback method of project analysis? a. Considers time value of money, liquidity bias b. Liquidity bias, arbitrary cutoff point c. Liquidity bias, ease of use d. Ignores time value of money, arbitrary cutoff point e. Ease of use, arbitrary cutoff point
8. Which of the following are disadvantages of the payback method of project analysis? a. Considers time value of money, liquidity bias b. Liquidity bias, arbitrary cutoff point c. Liquidity bias, ease of use d. Ignores time value of money, arbitrary cutoff point e. Ease of use, arbitrary cutoff point 9. Reem is considering adding necklaces to her gift shop. She estimates the cost of new inventory will be $9,500 and remodeling expenses will be $850. Necklace's sales are expected to produce net cash inflows of $1,300, $4,900, $4,400, and $4,100 over the next four years, respectively. Should Reem add necklaces to her store if she assigns a 3-year payback period to this project? Why or why not? a. No; The payback period is 3.94 years. b. No; The payback period is 2.94 years. c. Yes; The payback period is 3.94 years. d. Yes; The payback period is 3.09 years. e. Yes; The payback period is 2.94 years. 10. Choose the right answer related to the internal rate of return (IRR). a. The IRR yields the same accept and reject decisions as the net present value method given mutually exclusive projects. b. A project with an IRR equal to the required return would reduce the value of a firm if accepted. c. The IRR is equal to the required return when the net present value is equal to zero. d. Financing type projects should be accepted if the IRR exceeds the required return. e. The average accounting return is a better method of analysis than the IRR from a financial point of view. 11. If a portfolio of assets is well diversified, then the portfolio variance: a. will equal the variance of the most volatile asset in the portfolio. b. must be equal to or greater than the variance of the least risky asset in the portfolio c_may be less than the variance of the least risky asset in the portfolio d. will be a weighted average of the variances of the individual securities in the portfolio. e. will be an arithmetic average of the variance of the individual securities in the portfolio. 12. The standard deviation of a portfolio: a. is a weighted average of the standard deviations of the individual securities which comprise the portfolio. b. can be less than the standard deviation of the least risky security in the portfolio. c. must be equal to or greater than the lowest standard deviation of any single security held in the portfolio. d. is an arithmetic average of the standard deviations of the individual securities which comprise the portfolio. e. can never be less than the standard deviation of the most risky security in the portfolio
