Question

on the market excceds the earning per share s used to calculate the number of times the price being paid for on the market exceeds the dividend per share. s a measure of confidence in the ability of the company to maintain its earnings in future The P/E ratio represents a d. the value of a share of stock in the market oltiplier pplied to current earnings to determine Table I: Net cash flows for three Project Z Project X Project Y 1600 1600 1600 4800 3200 4800 8000 en that you wish to use the payback rule with a cut-off period of two years. which projects in Table 1 would you accept? a. Project X b. Project Y c. Project Z d. None of the above. 16. Which of the following statements is true regarding the pay back rule? a. Th e payback rule states that a project should be accepted if its payback period is more than a specified cutoff period The payback rule emphasizes cash flows that arrive after the payback period The payback rule considers the value of money. so it emphasizes that the more distant flows are less valuable. b. e. d. The payback rule will bias the firm against accepting long-term p because cash flows that arrive after the payback period are ignored. Table 2: Cash flows for a project Year Cash Flow 8500 3500 4000 4000 17. The project in Table 2 has an Internal Rate of Return (IRR) of approximately: Hint: Begin with a discount rate of 16% in your calculations a. 16% b. 16.38% c. 17% d. 17.45% 410

Answer 1