25.6 - Comparative Analysis of Techniques
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Practice Questions
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What does the Payback Period measure?
💡 Hint: Think about the initial investment and how long it takes to get that back.
What does the Profitability Index indicate?
💡 Hint: What does it mean if the PI is greater than one?
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Interactive Quizzes
Quick quizzes to reinforce your learning
What does the Payback Period ignore?
💡 Hint: Think about how long it takes to recoup your money.
True or False: The Internal Rate of Return considers the time value of money.
💡 Hint: Consider how IRR is calculated.
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Challenge Problems
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A company has two projects to consider: Project A costs $150,000 and is expected to provide cash inflows of $60,000 each year for 3 years. Project B costs $150,000 and is expected cash inflows of $70,000 in years 1 and 2, and $20,000 in year 3. Calculate both projects’ NPV at a discount rate of 8% and identify which project to accept.
💡 Hint: Utilize the NPV calculation method learned previously.
If a project requires an initial investment of $200,000 and offers a return of $50,000 for the first three years, then an amount of $10,000 for the last two years, what is the project's Payback Period and why might it be a risky investment?
💡 Hint: Consider annual cash inflows and the return compared to the initial investment.
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