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    Basic Capital Budgeting

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    1) Which are the following are correct:

    --one drawback of the discounted payback is that this method does not consider the time value of money, while the regular payback overcomes this drawback.

    --one drawback of the payback criterion is that this method does not take account of cash flows beyond the payback period.

    --The regular payback ignores cash flows beyond the payback period, but the discounted payback method overcomes this problem.

    ----The shorter a project's payback period, the less desirable the project is normally considered to be this criterion.

    ---If a project's payback is positive, the the project should be accepted because it must have a positive NPV.

    --The payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.

    --The discounted payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.

    --The net present value method (NPV) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.

    --The internal rate of return method (IRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.

    --The modified internal rate of return method (MIRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.

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    Solution Preview

    1) Which are the following are correct:

    --one drawback of the discounted payback is that this method does not consider the time value of money, while the regular payback overcomes this drawback.
    False

    --one drawback of the payback criterion is that this method does not take account of cash flows beyond the payback period.

    Correct

    --THe regular payback ignores cash flows beyond ...

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