Question

QUESTION 1

1. Payback period is the length of time needed for the sum alternative's costs and benefits at a given interest rate to equal zero (0).

   True

   False

QUESTION 2

1. When evaluating mutually-exclusive alternatives using B-C Ratio analysis, the alternative with the greatest B-C ratio is the most advantageous.

   True

   False

QUESTION 3

1. A discounted payback period is shorter than a non-discounted payback period because it doesn't assume a zero interest rate.

   True

   False

QUESTION 4

1. Timothy has a classic sports car that he bought in 2005 for $35,000. What type of analysis should he use to determine the car's estimated value in 2030?

   		Present Worth
   		Benefit-Cost Ratio
   		Equivalent Uniform Annual Worth
   		Future Worth

QUESTION 5

1. Which of the following statements does NOT describe an economically viable alternative?

   	1.	The Present Worth of the costs divided by the Present Worth of the benefits is greater than 1.
   	2.	The Equivalent Uniform Annual Cost divided by the Equivalent Uniform Annual Worth is less than 1.
   	3.	The Benefit-Cost Ratio is equal to or greater than 1.
   	4.	The Present Worth of the costs minus the Present Worth of the benefits is less than 0.

Answer 1

Answer 1

Payback period is the time required for the recovery of all cost through benefits. The recovery happens when the cumulative cashflow of the discounted cashflow at a given interest rate is equal to zero.

Hence the statement is TRUE

Answer 2

B/ C ratio represent the Benefits over the cost. Hemce higher the B/C ratio more preferred is the project.

Hemce statement is TRUE

Answer 3

When the interest rate is higher the discounted cashflow is lower hence the cumulative cashflow will take longer time to reach zero. Hence the discounted payback period is longer than non discounted cashflow.

Hence statement is FALSE.

Answer 4

Since we know the value at 2005 (present) and we need value in 2030 (future) and it is a one time payment.

Hence Future Worth analysis is required

Hence LAST OPTION is correct

Answer 5

When PW of cost / PW of benefit is more than 1 means that the PW of cost is more than the PW of benefits. Hence it is not an economically viable option

Equivalent uniform annual cost divided by equivalent uniform annual worth is less than 1 means equivalent annual cost is more than equivalent uniform annual worth. Hence is is also not viable

Benefit cost ratio is more than 1 means benefits are more than cost hence project is viable

PW of cost less PW of benefit is less than 0 means PW of cost is more than PW of benefits hence option is not viable

Hence 1,2 and 4 are not viable