A Firm Is Evaluating a Proposal Which Has an Initial

question 8

Multiple Choice

A firm is evaluating a proposal which has an initial investment of $50,000 and has cash flows of $15,000 per year for five years. The payback period of the project is ________.

• A) 1.5 years
• B) 2 years
• C) 3.3 years
• D) 4 years

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Definitions:

Reliability

The degree to which the result of a measurement, calculation, or specification can be depended on to be accurate.

Construct Validity

Evidence that a test measures a specific concept or trait. Construct validity includes an analysis of a test through one or more of the following methods: experimental design, factor analysis, convergence with other instruments, and/or discrimination with other measures.

Factor Analysis Validity

A statistical method used to examine whether a set of survey or test items correlates with underlying constructs, thereby validating the measure's theoretical assumptions.

Criterion-related Validity

The degree to which a test's outcomes correlate with other measures that assess similar constructs, determining how well one measure predicts an outcome based on another measure.