The payback period suffers from which of the following deficiencies? a. It is a rough measure of the uncertainty of future cash flows. b. It helps control the risk of obsolescence. c. It ignores the uncertainty of future cash flows. d. It ignores the financial performance of a project beyond the payback period. e. Both c and

The payback period suffers from which of the following deficiencies? a. It is a rough measure of the uncertainty of future cash flows. b. It helps control the risk of obsolescence. c. It ignores the uncertainty of future cash flows. d. It ignores the financial performance of a project beyond the payback period. e. Both c and

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 20E

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Which of the following is a disadvantage of the IRR project evaluation method? Select one: a. It does not take into account the time value of money. b. If there are negative cash flows after positive cash flows, there may be zero or multiple internal rates of return. c. It does not make adequate allowance for risk. d. It focuses on accounting profit rather than cash flow as the source of value.
Forecasting risk can be defined as the possibility that _____ will lead to incorrect decisions. a. the inclusion of opportunity costs b. erosion c. errors in projected cash flows d. the exclusion of sunk costs e. net working capital costs
Which of the following are significant flaws with the Payback Period Method? (Select all that apply) A. Biased against long-term projects B. Uses an arbitrary benchmark C. Very rarely used in practice D. Uses accounting profits rather than cash flows E. Ignores Time Value of Money
Which of the following is a disadvantage of the IRR project evaluation method? Question 5Select one: a. It does not take into account the time value of money. b. If there are negative cash flows after positive cash flows, there may be zero or multiple internal rates of return. c. It does not make adequate allowance for risk. d. It focuses on accounting profit rather than cash flow as the source of value.
Which are problems of the payback criterion? Check all that apply: It ignores cash flows after the cutoff date. It ignores the time value of money. It doesn't show the value created by a project. It doesn't fully reflect the risk of a project. It uses an arbitrary cutoff value. It is difficult to calculate.
Which of the following statements concerning the payback period, is not true? a. The payback period measures the time that a project will take to generate enough cash flows to cover the initial investment.incorrect b. the payback period involves a simple method c. the payback period takes into account the time value of money d. the payback period ignores cash flows
All of the following are weaknesses of the payback period EXCEPT Select one: a. only an implicit consideration of the timing of cash flows. b. the difficulty of specifying the appropriate payback period. c. a disregard for cash flows after the payback period. d. that it uses cash flows, not accounting projects.
What are the best functions to use when evaluating projects with uneven cashflows?
Which of the following statements is true about the internal rate of return? a. It is the interest rate that sets a project's net present value at zero. b. It is the minimal acceptable interest rate on an investment. c. It is the difference between the present value of the cash inflows and outflows associated with a project. d. It is the difference between the present value of a cash outflow and the depreciation associated with an asset.
Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. I. One defect of the IRR method is that it does not take account of the time value of money. II. One defect of the IRR method is that it does not take account of the cost of capital. III. A project's IRR is the discount rate that causes the PV of the inflows to equal the project's cost. O I and III only SO I only O I, II and III O II and III only O III only
Which of the following statements is correct regarding the payback method? Takes account of differences in size among projects. If a project’s payback is positive, then the project should be accepted because it must have a zero NPV. Ignores cash flows beyond the payback period. Has an objective, market-determined benchmark for making decisions. Directly account for the time value of money.
Below are some statements about risk and investment appraisal. Which one is incorrect? A. Risk-adjusted hurdle rates could be used to allow for the risk of a project B. Risk could be allowed for in a project by shortening the pay-back period C. While sensitivity analysis does not directly imbed risk in the appraisal process it is helpful for identifying "key" variables D. Risk decreases with the length of a project E. Probability analysis can be used to allow for the risk of different economic conditions