Which one of the following is a project acceptance

18. Which one of the following is a project acceptance indicator given an independent project
with investing type cash flows?
A. profitability index less than 1.0
B. project's internal rate of return less than the required return
C. discounted payback period greater than requirement
D. average accounting return that is less than the internal rate of return
E. modified internal rate of return that exceeds the required return
Refer to sections 9.3 through 9.6
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 9-6
Section: 9.3 through 9.6
Topic: Decision rules

19. Why is payback often used as the sole method of analyzing a proposed small project?
Refer to section 9.2
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 9-2
Section: 9.2
Topic: Payback
20. Which of the following are advantages of the payback method of project analysis?
I. works well for research and development projects
II. liquidity bias
III. ease of use
IV. arbitrary cutoff point
Refer to section 9.2
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 9-2
Section: 9.2
Topic: Payback advantages

21. Samuelson Electronics has a required payback period of three years for all of its projects.
Currently, the firm is analyzing two independent projects. Project A has an expected payback
period of 2.8 years and a net present value of $6,800. Project B has an expected payback period
of 3.1 years with a net present value of $28,400. Which projects should be accepted based on the
payback decision rule?
Refer to section 9.2
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 9-2
Section: 9.2
Topic: Payback decision rule
22. A project has a required payback period of three years. Which one of the following
statements is correct concerning the payback analysis of this project?
A. The cash flows in each of the three years must exceed one-third of the project's initial cost if
the project is to be accepted.
B. The cash flow in year three is ignored.
C. The project's cash flow in year three is discounted by a factor of (1 + R)
3
.
D. The cash flow in year two is valued just as highly as the cash flow in year one.
E. The project is acceptable whenever the payback period exceeds three years.
Refer to section 9.2
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 9-2
Section: 9.2
Topic: Payback