Question

16. The length of time it takes for an investment’ s discounted cash flows to equal its initial cost is known as the

A) internal rate of return. B) discounted payback period. C) payback period. D) net present value. E) profitability index.

17. The number of years it takes for an investment to recover its initial cost is known as the

A) internal rate of return. B) discounted payback period. C) net present value. D) profitability index. E) payback period.

Answer 1

16.Option a, Internal rate of return is a discount rate at which the net present value of the project is equal to zero.

Option b, discounted cash flows is the length of time it takes for an investment's discounted cash flows to equal to its initial cost.

Option c, payback period is the time period to recover the initial cost of investment.

Option d, In net present value, the net cash flows are determined and they are discounted back to present values. The project with the highest net present value is selected.

Option e, Profitability index is a ratio of the discounted cash flow to the initial cash flow of the project.

Hence, the answer is option b.

17.Option a, Internal rate of return is a discount rate at which the net present value of the project is equal to zero.

Option b, discounted cash flows is the length of time it takes for an investment's discounted cash flows to equal to its initial cost.

Option c, payback period is the time period to recover the initial cost of investment.

Option d, In net present value, the net cash flows are determined and they are discounted back to present values. The project with the highest net present value is selected.

Option e, Profitability index is a ratio of the discounted cash flow to the initial cash flow of the project.

Hence, the answer is option e.