question archive TRUE or FALSE 1) It is correct to say that the payback period (PP) method ignores the time value of money

TRUE or FALSE 1) It is correct to say that the payback period (PP) method ignores the time value of money

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TRUE or FALSE

1) It is correct to say that the payback period (PP) method ignores the time value of money.

2. No project can have more than one internal rate of return (IRR).

3. A project's equivalent annual annuity (EAA) is expressed in dollars.

4. When the IRR serves as the discount rate, the net present value (NPV) = $0.

5. A project should be accepted if its profitability index (PI) > 0.

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Answers:

1. It is correct to say that the payback period (PP) method ignores the time value of money.

Yes, it is true since pay back is one of the non-discounted technique.

Payback period refers to the amount of time it takes to recover the cost of an investment or how long it takes for an investor to reach breakeven.

2.      No project can have more than one internal rate of return (IRR).

Multiple IRRs occur when a project has more than one internal rate of return. The problem arises where a project has non-normal cash flows.

It is false since multiple IRRs has more than one IRR

3.      A project's equivalent annual annuity (EAA) is expressed in dollars.

True, because net present value calculate the total value of a project to a business in present dollars.

4.      When the IRR serves as the discount rate, the net present value (NPV) = $0.

True, since IRR when used as the discounted rate, the present value of cash inflow is equal to present value cash outflow. And NPV is calculated by present value cash inflow - present value cash outflow.

5.   A project should be accepted if its profitability index (PI) > 0.

False, since a profitability index of 1 indicates that a project will break even, if it is less than 1, the cost outweigh the benefits. If it is above the venture should be profitable. The statement is wrong since above 0 means that it can be less than 1.