Which of the following statements indicate a disadvantage of using the discounted payback period for capital budgeting decisions? Check all that apply. The discounted payback period does not take the project’s entire life into account. The discounted payback period does not take the time value of money into account. The discounted payback period is calculated using net income instead of cash flows.

Which of the following statements indicate a disadvantage of using the discounted payback period for capital budgeting decisions? Check all that apply. The discounted payback period does not take the project’s entire life into account. The discounted payback period does not take the time value of money into account. The discounted payback period is calculated using net income instead of cash flows.

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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Similar questions

Explain how inflation impacts capital budgeting analysis. Why do we care? How is NPV impacted if you neglect to adjust for inflation in the cash flows when you use a discount rate based upon market (nominal) rates. Does it make the project look better or worse? Explain fully.
In capital budgeting, the Payback Method suffers from the problem of: No consideration to sunk costs No regard for the time value of money No consideration for simple computation No regard for capital expenditure
Why the payback method is often considered inferior to discounted cash flow in capital investment appraisal? Select one: a. It is more difficult to calculate b. It does not calculate how long it will take to recoup the money invested c. It only takes into account the future income of a project d. None of the option e. It does not take account of the time value of money
Which of the following is a problem with using payback period for capital budgeting decisions bias against long term projects in favor of short term projects bias against short term projects in favor of long term projects time value of money conceptual violation
Which of the following is a problem with using discounted payback period for capital budgeting decisions arbitrary cutoff choice bias against short term projects in favor of long term projects time value of money conceptual violation
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 is FALSE? A. When evaluating a capital budgeting decision, we generally include interest expense. B. Only include as incremental expenses in your capital budgeting analysis the additional overhead expenses that arise because of the decision to take on the project. C. Many projects use a resource that the company already owns. O D. As a practical matter, to derive the forecasted cash flows of a project, financial managers often begin by forecasting earnings.
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
One of the benefit of the pay back period is that it focuses on the timing of the project`s benefits and costs, even though it does not adjust the cash flows for the time value of money Select one: True False
Which of the following statement is true? O a. Sunk cost is not relevant in capital budgeting decision O b. Capital budgeting decisions are based on past OC. Capital budgeting decisions are short term in nature O d. Capital Budgeting decisions can be changed anytime
Which of the following is NOTa relevant cash flow and thus should not be reflected in the analysis of a capital budgeting project? a. Shipping and installation costs. b. Cannibalization effects. c. Opportunity costs. d. Sunk costs that have been expensed for tax purposes. e. Changes in net working capital. Please explain your answer for better understanding.
Sophisticated capital budgeting techniques do not A. examine the size of the initial outlay. B. use net profits as a measure of return. C. explicitly consider the time value of money. D. take into account an unconventional cash flow pattern.