Payback Is Frequently Used to Analyze Independent Projects Because

question 227

Multiple Choice

Payback is frequently used to analyze independent projects because:

• A) It considers the time value of money.
• B) All relevant cash flows are included in the analysis.
• C) The cost of the analysis is less than the potential loss from a faulty decision.
• D) It is the most desirable of all the available analytical methods from a financial perspective.
• E) It produces better decisions than those made using either NPV or IRR.

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Definitions:

Risk-free Rate

The theoretical rate of return of an investment with zero risk, typically associated with government bonds.

Call Provision

Agreement giving the corporation the option to repurchase the bond at a specified price before maturity.

Bond Indenture

A legal contract detailing the terms and conditions under which bonds are issued, including the interest rate, maturity date, and other conditions.

Time Premium

The portion of an option's price that exceeds its intrinsic value, reflecting the value of time left until expiration.