Solution Library

Calculation Of Payback Period

Question

1. Which of the following is NOT a limitation of the payback rule?

A. It does not consider the time value of money
B. It lacks a decision criterion that is economically based
C. It is difficult to calculate
D. It does not consider cash flows occurring after the payback period

2. Consider the following two projects.
 

Project

Year 0 Cash Flow

Year 1 Cash Flow

Year 2 Cash Flow

Year 3 Cash Flow

Year 4 Cash Flow

Discount Rate

A

-100

40

50

60

NA

0.15

B

-73

30

30

30

30

0.15


The payback period for project B is closest to:

A. 2.5 years
B. 2.0 years
C. 2.2 years
D. 2.4 years

Summary

These short questions belong to Finance. The 1st question is about the limitation of payback rule and the 2nd question is about finding the payback period for a project.

Total Word Count NA

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Comments

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