corporte finance chap 1 QUIZ.docx

***PBP Strengths and Weaknesses*** **[Strengths]:** - **Easy to use and understand** - **Can be used as a measure of liquidity** - **Easier to forecast ST than LT flows** **[Weaknesses]:** - **Does not account for TVM** - **Does not consider cash flows beyond the PBP** - **Cu...

***PBP Strengths and Weaknesses*** **[Strengths]:** - **Easy to use and understand** - **Can be used as a measure of liquidity** - **Easier to forecast ST than LT flows** **[Weaknesses]:** - **Does not account for TVM** - **Does not consider cash flows beyond the PBP** - **Cutoff period is subjective** ***IRR Strengths and Weaknesses*** **[Strengths]:** - **Accounts for TVM** - **Considers all cash flows** - **Less subjectivity** **[Weaknesses]:** - **Assumes all cash flows reinvested at the IRR** - **Difficulties with project rankings and Multiple IRRs** ***NPV Strengths and Weaknesses*** **[Strengths]:** - **Cash flows assumed to be reinvested at the hurdle rate.** - **Accounts for TVM.** - **Considers all cash flows.** **[Weaknesses]:** - **May not include managerial options embedded in the project.** - ***PI Strengths and Weaknesses*** **[Strengths]:** - **Same as NPV** - **Allows comparison of different scale projects** **[Weaknesses]** - **Same as NPV** - **Provides only relative profitability** - **Potential Ranking Problems**