BUISENESS MANAGEMENT
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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PT Asia Inc accepts the project because it has an NPV greater than $5, 000.
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PT Asia Inc rejects the project because it has an NPV less than $10.
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PT Asia Inc accepts the project because it has an NPV greater than $18, 000.
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PT Asia Inc rejects the project because it has an NPV less than $0.
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Detailed explanation-1: -The payback period in capital budgeting gives the number of years it takes for you to recover the cost of the investment. For example, if it takes 10 years for you to recover the cost of the investment, then the payback period is 10 years. The payback period is an easy method to calculate the return on investment.
Detailed explanation-2: -The initial outlay is the initial cash flow which is required in the year 0 for a given project. Along with the initial project costs, this is usually the largest cash flow in a given project.
Detailed explanation-3: -A short PB period is preferred as it indicates that the project would “pay for itself” within a smaller time frame. In the following example, the PB period would be three and one-third of a year, or three years and four months. Payback periods are typically used when liquidity presents a major concern.
Detailed explanation-4: -Question: Question 4 (1 point) Saved When a capital budgeting project generates a positive net present value, this means that the project earns a return higher than the internal rate of return.