Use the Following Mutually Exclusive Investment Cash Flows for the Question(s)

question 409

Multiple Choice

Use the following mutually exclusive investment cash flows for the question(s) below: Based on the payback criterion, which of the following is NOT true?

• A) With a payback cutoff of 2.5 years, both projects are acceptable.
• B) With a payback cutoff of three years, both projects are acceptable.
• C) With a payback cutoff of 1.5 years, neither project is acceptable.
• D) With a payback cutoff of 1.75 years, only Project A is acceptable.
• E) If you choose the project that pays back the fastest, Project A is preferred.

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Definitions:

Nominal Rate

The interest rate stated on a loan or investment agreement, not accounting for inflation or compounding effects.

Semi-Annual Payments

Payments made twice a year, often used in the context of loan repayments or bond interest payments.

Nominal Rate

The stated interest rate of an investment or loan, which does not account for compounding or inflation effects.

Monthly Compounded

A method where interest adds to the principal sum at the end of each month, allowing for the interest in the next month to be based on the new total.