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- B5) According to these techniques (Payback period traditional, Discount payback period modern ,net present value and profitability index ) which technique is better and why?Define each of the following terms: Production opportunities; time preferences for consumption; risk; inflation Real risk-free rate of interest, r*; nominal (quoted) risk-free rate of interest, rRF Inflation premium (IP) Default risk premium (DRP) Liquidity premium (LP); maturity risk premium (MRP)Define Concept about these topics1.Payback method 2.Discounted payback method 3.Net present value 4.Internal rate of return 5.Profitability Index 6.MIRR
- State ofEconomy Probabilityof State Return on AssetDin State Return on AssetEin State Return on AssetFin State Boom 0.35 0.060 0.310 0.25 Normal 0.50 0.060 0.180 0.20 Recession 0.15 0.060 -0.210 0.10 1.As an investor, compare Stock E with Stock F, and identify which stock willyou select and why.Payback Period Modified Payback Period Net Present Value Profitability Index Accounting Rate of Return Internal Rate of ReturnDefine spontaneous liabilities-to-sales ratio (L0*/S0)
- Explain APY (annual percentage yield)?Refer to the following payoff table (values are profit): State of Nature Alternative S1 S2 A1 75 −40 A2 0 100 Prior Probability 0.6 0.4 What is the expected payoff of the decision strategy (i.e. using the EMV/EP criterion)?The target rate of return on investment the percentage used to markup the cost to an acceptable selling price. True False
- Which one of the following is most closely related to the net present value profile? A: Payback B: Discounted payback C: Profitability index D: Average accounting return E: Internal rate of returna) Net Present Value (Present Worth); b) Internal Rate of Return (IRR);c) External Rate of Return (ERR);d) Simple Payback PeriodConsider the following payoff table that represents the profits earned for each alternative (A, B, and C) under the states of nature S1, S2, and S3. Using the Laplace criterion, what would be the highest expected payoff? S1 S2 S3 A $100 145 120 B $75 125 110 C $95 85 60