ple Choice S points each-60 points total) Which of the following is correct? a.

Question

ple Choice S points each-60 points total) Which of the following is correct? a. The re 1. gular payback period is useful as an indicator of project liquidity because it gives managers an idea of how long it will take to recover the funds invested in a project. b. The regular payback period does not consider cash flows beyond the payback year, but the discounted payback period overcomes this defect C. IRR assumes that all cash flows received will be reinvested at the risk-free rate. d. If a project's IRR is greater than WACC, then its NPV must be negative. Which of the following factors should be included in the cash flows used to estimate a project's N a. 2. b. c. d. Interest on funds borrowed to help finance the project The end-of-project recovery of any working capital required to operate the project Cannibalization effects, but only if those effects increase the project's projected cash flows Expenditures been expensed for tax purposes to date on research and development related to the project, provided those costs have alread

Explanation / Answer

1.

The regular payback period is useful as an indicator of project's liquidity because it gives manager an idea of how long it will take to recover the funds invested capital Demerit of payback period is it does not consider time value of money and cash flow after payback period.

IRR method assumes all cash flow are reinvested at IRR rate.

So, Option (A) is correct answer.

2.

Expenditure of research is considered as sunk cost, so it does not consider in NPV calculation. in cash estimation to calculate NPV, the end of project recovery of any working capital required to adjust.

Option (B) is correct answer.

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