Question 9) Which of the statements below is FALSE? A) In order to account for the time value of money with th

9) Which of the statements below is FALSE?

A) In order to account for the time value of money with the Payback Period Model, the future cash flow needs to be restated in current dollars.

B) The Discounted Payback Period method is the time it takes to recover the initial investment in current dollars.

C) When we discount a future cash flow with our standard time-value-of-money concepts, we inherently assume that the entire cash flow was received at the end of the year.

D) The Payback Period method (with no discounting) is the dollar amount that it takes to recover the initial investment in current dollars.

12) Which of the statements below is FALSE?

A) To account for the time value of money with the Payback Period Model, the future cash flow needs to be restated in current dollars.

B) The Discounted Payback Period method is the time it takes to recover the initial investment in future dollars.

C) When we discount a future cash flow with our standard time-value-of-money concepts, we inherently assume that the entire cash flow was received at the end of the year.

D) The Discounted Payback Period method does not correct for the cash flow after the recovery of the initial outflow.

13) Consider the following four-year project. The initial outlay or cost is $180,000. The respective cash inflows for years 1, 2, 3 and 4 are: $100,000, $80,000, $80,000 and $20,000. What is the discounted payback period if the discount rate is 11%?

A) About 1.667 years B) About 2.000 years C) About 2.135 years D) About 2.427 years

14) For small-dollar decisions, a company usually establishes a short, arbitrary cutoff date for handling the initial screening of many small-dollar opportunities.

15) By switching to monthly cash flows, we cannot get a more accurate estimate of the discounted payback period.

Comment: By switching to monthly cash flows, we CAN GET a more accurate estimate of the discounted payback period.

16) The Discounted Payback Period method is a modified payback period model that considers how long it takes to recover the initial investment in current dollars.

17) Describe the shortcomings of the payback period model or method (without discounting).

Answer: The payback period method ignores cash inflows after the initial outflow has been recovered. Thus, this method is biased toward those projects that have higher cash inflows for earlier years and against those with higher inflows for later y

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