25.5.A. Traditional Techniques (Non-discounted Methods)

Try these first

1. 1.

   What does the Payback Period measure?

   Hint

   Think about how long it takes to make back your money.

2. 2.

   Is the ARR based on cash flows or accounting profits?

   Hint

   Consider what type of financial statement this refers to.

3. 3.

   What does the Payback Period measure?

   • The time to recover an investment
   • The total profit of an investment
   • The return on equity

   Hint

   Think about the meaning of 'payback'.

4. 4.

   True or False: The Accounting Rate of Return considers cash flows.

   • True
   • False

   Hint

   Consider which type of financial data is being referred to.

5. 5.

   A company invests in a project costing $500,000. It expects to receive$150,000 per year for the first three years and $300,000 in the fourth year. Calculate the Payback Period and analyze if it is a worthwhile investment.

   Hint

   Create a cash flow chart to visualize recovery.

6. 6.

   An investment shows a $10,000 average annual profit out of a$50,000 investment. Discuss how this would affect decision-making, especially relevant to non-cash items.

   Hint

   Consider non-cash items like depreciation and their impact on actual cash flow.