Question

Which of the following statements are false?
1 point

The net present value is the preferred decision criterion.

The internal rate of return is the discount rate that makes the NPV = 0.

2.

Which of the following statements are true?
1 point

The payback period is measured as a percent.

The AAR is similar to the calculation for the return on assets.

The discounted payback is better than the payback because it does not require an arbitrary cutoff point.

none of the above.

Answer 1

QUESTION 1

The Statement 1 is FALSE. NPV is not the preferred decision criterion. It is not suitable for the projects which have different life cycle.

Statement 2 is true. Internal Rate of Return is the discount rate which equates present value of cash inflows to outflow. That means, IRR is the discount rate at which NPV is zero.

QUESTION 2

Answer : Statement   2   is TRUE

1) This statement is FALSE. Pay Back period is not measured as percentage. It is expressed in terms of period that is number of years.

2) This statement is TRUE. AAR that is Average Rate of Return or Accounting Rate of Return is similar to Return on Assets. AAR can be calculated as calculating ROA for every year and averaging the results.

3) This statement is FALSE. The discounted payback requires arbitrary cutoff point. One disadvantage of Discounted Pay Back period is that it requires arbitrary cutoff point.

4) This statement is FALSE