In financial terms, what is the biggest downfall to using payback rather than discounted payback when...

In financial terms, what is the biggest downfall to using payback rather than discounted payback when analyzing a project? The first choice always seems to be best. It does not account for time value of money. The WACC isn't accurate. It is more difficult to calculate than discounted payback.

Expert Solution

Colby Messinger answered 1 year ago

q.1 Discounted payback period. Becker, Inc. uses the discounted payback period for projects costing less than...

q.1 Discounted payback period. Becker, Inc. uses the discounted payback period for projects costing less than $25,000 and has a cutoff period of four years for these small-value projects. Two projects, R and S, are under consideration. Their anticipated cash flows are listed in the following table. If Becker uses a discount rate of 4 %4% on these projects, are they accepted or rejected? If it uses a discount rate of 12 %12%? A discount rate of 18 %18%? Why...

1: The discounted payback period will A: always be longer than the payback period. B: uses...

1: The discounted payback period will A: always be longer than the payback period. B: uses discounted cash flows C: both "A" and "B" are correct D: is the same as the payback period 2: The cost of capital is: A: another term for the market risk premium. B: another term for the risk-free rate of return. c C: the return on the overall market. D: the minimum required return on a new investment 3: A special dividend A: is...

Using a 7% annual cost of capital, what is the discounted payback period in years of...

Using a 7% annual cost of capital, what is the discounted payback period in years of the potential project below? round to 2 decimals Year-----Cash Flows 0..............-5000 1...............1625 2..............1668 3..............1616 4..............1679 5..............1619 can you please let me know how you find this? especially if using a financial calculator. Thanks!

What is the discounted payback period using the given discount rate and the cumulative cash flow...

What is the discounted payback period using the given discount rate and the cumulative cash flow in the payback period (must get both correct for full credit) of the investment and annual cash flow given below? Discount Rate Investment Annual Income Cash Flow Useful Life 6% 67,000 12,800 12

Using a 7% annual cost of capital, what is the discounted payback period in years (round...

Using a 7% annual cost of capital, what is the discounted payback period in years (round to 2 decimal places) of the potential project below? Year Cash Flow 0 -$5,000 1 $1,609 2 $1,693 3 $1,558 4 $1,545 5 $1,582 Please include the steps to plug into a financial calculator, thank you

5. What is the difference between the payback period and the discounted payback? 6. Define the...

5. What is the difference between the payback period and the discounted payback? 6. Define the Average Accounting Return (AAR). What are the disadvantages of the AAR? 7. What is the Internal Rate of Return (IRR)? What is the IRR rule? How is the IRR calculated? 8. Do the NPV rules and IRR rules lead to identical investment decisions? If so, under what circumstances?

Question

In financial terms, what is the biggest downfall to using payback rather than discounted payback when...

Solutions

Expert Solution

Related Solutions