Question

When will the conventional payback method and discounted payback method yield the same result?

	A.	Always
	B.	Never
	C.	If and only if the interest (discount) rate for the discounted payback method is much lower than the conventional method.
	D.	No conclusions can be drawn based on the statement.
	E.	When the interest rate is zero.

Two mutually exclusive project alternatives are being considered, where both project lives are shorter than the infinite project analysis period. The first alternative has a 5-year project life, while the second alternative has a 3-year project life. What is the best viable finite analysis period?

	A.	2 years
	B.	15 years
	C.	5 years
	D.	3 years
	E.	8 years
	F.	None of the options in this list are correct.

The drawbacks of the payback screening method includes ___________ (select all that apply)

	A.	Only helping screen projects in firms that are not capital constrained.
	B.	Being meaningful only if the discount method is applied.
	C.	Inability to gauge the earning potential of a project.
	D.	Ignoring the timing of cash flows.
	E.	Fails to reveal how much of the invested funds is contributing towards interest expenses.

A program is examining several revenue project alternatives, which are NOT mutually exclusive. The design and manufacturing firm earns an average of 15% on its invested capital. Which projects would be a selected if the new goal is to exceed the average? (select all that apply)

	A.	PW(15%) = - $100,000
	B.	PW(15%) = 0
	C.	PW(15%) = - $50,000
	D.	PW(15%) = $0.50
	E.	PW(15%) = $3,000

A program manager is examining several solution alternatives for a service project --so the decisions ARE MUTUALLY EXCLUSIVE. Which project(s) should be selected if the interest rate is 15%?

	A.	PW(15%) = 0
	B.	PW(15%) =  $100,000
	C.	PW(15%) =  $50,000
	D.	PW(15%) = $3,000
	E.	PW(15%) = $0.50

Answer 1

Ans 1)

Conventional Payback period and discounted payback period would give same results when discounting factor equals to 1 that is interest rate is 0

Hence option E is correct

Ans 2)

When we have 2 mutually exclusive projects then we should go for Least common multiple approach therefore observation period in our case be LCM(3,5)=15 years

Hence option B is correct

Ans 3)

Option C is correct because it just matters the cash flows which make them to break even and doesn't consider at all about cash flows incurred after payback period

Option B and C are correct

Ans 4)

Option D and Option E are correct as higher the PW better is the alternative

Hence option E is correct

Ans 5)

Option B is correct