Value One category of capital investment evaluation methods does not use present value. The primary difference between the category of methods that do use present value and this category is that this category _________ (does/does not) take the time value of money into account. The basic premise of the time value of money is that a dollar today is worth __________ (less than, more than, the same as) a dollar
Mastery Problem: Cash Payback and Average
Companies use capital investment analysis to evaluate long-term investments. Capital investment evaluation methods that do not use present values are (1) Average rate of return method and (2) Cash payback method.
Methods That Do Not Use Present Value
One category of capital investment evaluation methods does not use present value. The primary difference between the category of methods that do use present value and this category is that this category _________ (does/does not) take the time value of money into account. The basic premise of the time value of money is that a dollar today is worth __________ (less than, more than, the same as) a dollar tomorrow.
True or False: Considering the fact that most firms use methods from each category, it can be concluded that both categories have value. ________
Cash Payback Method
This method identifies how long it will take (in years) to recover the __________ (initial investment, reuired return, total profit) . The particulars of the method vary depending on whether the
Cash Payback Method (Even cash flows)
Suppose that a particular investment required an up-front capital outlay of $100,000. This investment is expected to yield cash flows of $50,000 per year for 10 years. What is the payback period for this investment? If required, round your answer to two decimal places.
Cash Payback Period = $__________ / $___________ = ___________ years
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