Which of the following statements about the "payback method" of selecting capital projects is true? Question 15 options: A) The payback method considers all cash flows, even those that occur after the payback has been reached. B) In the payback method, all cash flows are disregarded. C) The payback method has many deficiencies. D) The payback method always leads to the same decision as the other investment selection methods.

Which of the following statements about the "payback method" of selecting capital projects is true? Question 15 options: A) The payback method considers all cash flows, even those that occur after the payback has been reached. B) In the payback method, all cash flows are disregarded. C) The payback method has many deficiencies. D) The payback method always leads to the same decision as the other investment selection methods.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 2DQ: Discuss the principal limitations of the cash payback method for evaluating capital investment...

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A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

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Which of the following statements about the "payback method" of selecting capital projects is true?

Question 15 options:

A)	The payback method considers all cash flows, even those that occur after the payback has been reached.

B)	In the payback method, all cash flows are disregarded.

C)	The payback method has many deficiencies.

D)	The payback method always leads to the same decision as the other investment selection methods.

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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
Select all that are true with respect to the IRR rule for making capital investment decisions. Group of answer choices The IRR rule does not distinguish between borrowing and lending One can use the IRR rule for investment decision making without knowing the discount rate The project with the highest IRR does not necessarily create the most value add The IRR rule ignores cash flows that are very far in the future The project with the highest IRR is by definition the project with the most value add The IRR is the discount rate that makes the project's NPV equal to zero
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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.
Which of the following statements is true? O The salvage value of new equipment should not be considered when using the internal rate of return method to evaluate a project. O The internal rate of return method assumes that the cash flows generated by a project are reinvested at a rate of return that equals the company's cost of capital. O The profitability index and the internal rate of return will always result in the same preference ranking for investment projects. O In calculating the profitability index, the initial investment in the project should be reduced by any proceeds from the sale of old equipment. O None of the above statements is true.
Consider the following statement: In a capital rationing problem withdivisible investments, if all projects have positive present worths, all of theinvestment capital will be used. Solve, a. This statement is true b. This statement is false c. Not enough information is given; the numeric values of the present worths of the projects are required to know whether this statement is true or false d. Not enough information is given; the numeric values of the IRRs of the projects and the value of MARR are required to know whether this statement is true or false
d. Consider the following statement "If an analyst decides to use real options methodology to value a project, estimating a standard Discounted Cash Flow model is useless". Do you agree with this statement? Explain your answer.
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