Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
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Chapter 19, Problem 20E
To determine
Identify the correct option for the given investment.
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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
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 statements are true regarding the payback period of an investment?
It does not account for the time value of money
No objective criteria exists for what is an acceptable payback period
Cash flows occurring after the payback period have no impact on the payback computation
All of the above
Chapter 19 Solutions
Cornerstones of Cost Management (Cornerstones Series)
Ch. 19 - Explain the difference between independent...Ch. 19 - Explain why the timing and quantity of cash flows...Ch. 19 - Prob. 3DQCh. 19 - Prob. 4DQCh. 19 - What is the accounting rate of return?Ch. 19 - What is the cost of capital? What role does it...Ch. 19 - Prob. 7DQCh. 19 - Explain how the NPV is used to determine whether a...Ch. 19 - Explain why NPV is generally preferred over IRR...Ch. 19 - Prob. 10DQ
Ch. 19 - Prob. 11DQCh. 19 - Prob. 12DQCh. 19 - Prob. 13DQCh. 19 - Prob. 14DQCh. 19 - Prob. 15DQCh. 19 - Jan Booth is considering investing in either a...Ch. 19 - Prob. 2CECh. 19 - Carsen Sorensen, controller of Thayn Company, just...Ch. 19 - Manzer Enterprises is considering two independent...Ch. 19 - Keating Hospital is considering two different...Ch. 19 - Prob. 6CECh. 19 - Prob. 7ECh. 19 - Prob. 8ECh. 19 - Each of the following scenarios is independent....Ch. 19 - Roberts Company is considering an investment in...Ch. 19 - NPV A clinic is considering the possibility of two...Ch. 19 - Refer to Exercise 19.11. 1. Compute the payback...Ch. 19 - Buena Vision Clinic is considering an investment...Ch. 19 - Consider each of the following independent cases....Ch. 19 - Gina Ripley, president of Dearing Company, is...Ch. 19 - Covington Pharmacies has decided to automate its...Ch. 19 - Postman Company is considering two independent...Ch. 19 - Prob. 18ECh. 19 - Prob. 19ECh. 19 - Prob. 20ECh. 19 - Assume there are two competing projects, X and Y....Ch. 19 - Prob. 22ECh. 19 - Assume that an investment of 100,000 produces a...Ch. 19 - Prob. 24PCh. 19 - Prob. 25PCh. 19 - Prob. 26PCh. 19 - Kent Tessman, manager of a Dairy Products...Ch. 19 - Friedman Company is considering installing a new...Ch. 19 - Okmulgee Hospital (a large metropolitan for-profit...Ch. 19 - Mallette Manufacturing, Inc., produces washing...Ch. 19 - Jonfran Company manufactures three different...Ch. 19 - Prob. 32P
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Similar questions
- 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.arrow_forwardThe payback criterion has problem(s) like Select one: O A. It considers the time value of money O B. It ignores the cash outflows or inflows after the payback period and the time value of money O C. It considers the inflows and outflows after the Payback Period O D. It considers all the cash outflows or inflows of the projectarrow_forwardThe cash payback technique: a. considers cash flows over the life of a project. b. may be useful as an initial screening device. c. is superior to the net present value method. d. cannot be used with uneven cash flows.arrow_forward
- 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.arrow_forwardWhich of the following is NOT a limitation of the payback rule? O It does not consider cash flows occurring after the payback period. O Lacks a decision criterion that is economically based. O It does not consider the time value of money. O It is difficult to calculate.arrow_forwardWhich 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.arrow_forward
- 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.arrow_forwardWhen a capital investment is expected to provide unequal annual cash inflows, the payback period cannot be calculated.True or Falsearrow_forwardConsider the following statements concerning the payback method of investment appraisal: 1. It completely ignores the timing of future cash flows. 2. It requires managers to determine an appropriate payback period. Which of these statements is/are correct? A. 1 only B. Neither 1 nor 2 C. 1 and 2 D. 2 onlyarrow_forward
- 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.arrow_forwardWhich 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 onlyarrow_forwardCalculate the present value and future value of an uneven cash flow stream.arrow_forward
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