Truly disadvantages of the regular payback method

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Reference no: EM131918645

1. Four of the following statements are truly disadvantages of the regular payback method, but one is not a disadvantage of this method. Which one is NOT a disadvantage of the payback method?

a. Does not provide any indication regarding a project's liquidity or risk.

b. Does not take account of differences in size among projects.

c. Ignores cash flows beyond the payback period.

d. Does not directly account for the time value of money.

e. Lacks an objective, market-determined benchmark for making decisions.

2. Westchester Corp. is considering two equally risky, mutually exclusive projects, both of which have normal cash flows. Project A has an IRR of 11%, while Project B's IRR is 14%. When the WACC is 8%, the projects have the same NPV. Given this information, which of the following statements is CORRECT?

a. If the WACC is 13%, Project A's NPV will be higher than Project B's.

b. If the WACC is 9%, Project A's NPV will be higher than Project B's.

c. If the WACC is 6%, Project B's NPV will be higher than Project A's.

d. If the WACC is greater than 14%, Project A's IRR will exceed Project B's.

e. If the WACC is 9%, Project B's NPV will be higher than Project A's.

Reference no: EM131918645

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