Nestor Company Is Considering the Purchase of an Asset for $100,000

question 54

Multiple Choice

Nestor Company is considering the purchase of an asset for $100,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year. Compute the payback period for this investment.

• A) 2.85 years.
• B) 2.57 years.
• C) 3.00 years.
• D) 2.50 years.
• E) 3.62 years.

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Definitions:

Risk Aversion

A trait or behavior exhibited by investors who prefer to avoid risk, choosing safer investments over riskier ones.

Liquidity

Liquidity describes the ease with which an asset, or security, can be converted into ready cash without affecting its market price.

Time Horizon

The length of time over which an investment is expected to be held before it is liquidated.

Risk Tolerance

An investor's capacity and willingness to endure market volatility and bear potential financial losses.