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Questions and Answers
What does the payback period represent?
What does the payback period represent?
Which of the following is considered under the Net Present Value (NPV) calculation?
Which of the following is considered under the Net Present Value (NPV) calculation?
What is the decision rule for accepting a project based on NPV?
What is the decision rule for accepting a project based on NPV?
Which strategy aligns with the payback rule?
Which strategy aligns with the payback rule?
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When calculating NPV, which factor does NOT need to be considered?
When calculating NPV, which factor does NOT need to be considered?
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Study Notes
Payback Period
- The payback period is the number of years it takes for cumulative forecasted cash flows to equal the initial investment.
Payback Rule
- Select projects with a payback period within the desired timeframe.
- Prioritize projects with the shortest payback period.
Net Present Value (NPV)
- Calculate all net cash flows (positive and negative).
- Determine the project's cost of capital.
- Calculate the present value of the cash flows.
NPV Rules
- Accept projects with a positive NPV.
- Reject projects with a negative NPV.
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Description
Test your knowledge on key investment concepts such as payback period and net present value (NPV). This quiz covers essential rules for selecting and prioritizing projects based on financial forecasts. Perfect for finance students and professionals alike.
