Many Firms Combine Net Present Value and Payback When Analyzing

question 39

Multiple Choice

Many firms combine net present value and payback when analyzing project risk. Which of the following statements is/are correct?
I. Both payback and net present value consider the frequency of cash flows.
II. Both payback and net present can be adjusted for risk.

• A) I only
• B) II only
• C) Both I and II
• D) Neither I nor II

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Definitions:

Debt-Equity Ratio

A measure used to evaluate a company's financial leverage, calculated by dividing its total liabilities by its shareholders' equity.

Financial Plan

A comprehensive evaluation of an individual's or organization's current and future financial state by using known variables to predict future cash flows, asset values, and withdrawal plans.

Capital Budgeting Decisions

The process by which a business evaluates and selects long-term investments that are worth more than their cost, considering their potential to generate future profits.

Interest Rates

The cost of borrowing money or the return for investing money, typically expressed as a percentage of the principal amount per annum.