Answered: The most accurate way to analyze the…

Business

Accounting

The most accurate way to analyze the profitability of an investment is to compute the payback period.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 14MC: This calculation determines profitability or growth potential of an investment, expressed as a...

See similar textbooks

Related questions

Q: Explain the relationship between net present value and internal rate of return, and show how they…

A: Relationship Between Net present Value and Internal rate of Return

Q: What is a satisfiable investment? When the present value of benefits surpasses the cost of an…

A: This question explains about the present value of benefits surpasses and the cost of an investment…

Q: How do an investment's required rate of return vary with perceived risk? Explain with an example?

A: Required rate of return refers to the rate which the investors expects from their investments. This…

Q: Beta measures the sensitivity of the asset's return to variation in the market return. What is…

A: Beta of a stock measures the sensitivity of assets return to variation in market return It means…

Q: Apply the procedure to find the true IRR, or return on invested capital, of the mixed investment?

A: The internal rate of return (IRR) is a capital budgeting metric used to gauge the benefit of…

Q: What is a satisfactory investment? When the present value of benefits exceeds the cost of an…

A: Satisfactory investment refers to an investment wherein the present value of benefits after…

Q: Which of the following is true of the cash payback period? a.the longer the payback, the longer the…

A: Payback period is the period under which the amount of investment is expected to be recovered.…

Q: The excess present value method is anchored on the theory that the future returns, expressed in…

A: The excess present value method is also known as a net present value which required the present…

Q: d. Explain why NPV is considered technically superior to Payback and Accounting Rate of Return (ARR)…

A: There are various capital budgeting methods that can be used to assess or evaluate various…

Q: The desired rate of return on an investment should reflect the degree of risk involved. A. True…

A: Riskier investments may give higher returns to the investors as they provide favorable ratio of risk…

Q: The Capital Asset Pricing Model (CAPM) asserts that an asset’s expected return is equal to the…

A: Based on CAPM, Expected return on security = Risk free rate + Beta * Market risk premium

Q: Which of the following methods does not consider the investment’s profitability? a. ARR b. Payback…

Q: When considering multiple possible investments, why are rates of return preferable than monetary…

A: An investment's net profit or loss over a certain period expressed as a percentage of the…

Q: True or false. to apply the rate of return analysis correctly, we need to classify an investment i…

A: In the given question we need to answer whether the given statement is True or False.

Q: Assets are priced such that _____________________ increase with the riskiness of future payoffs. A)…

A: Solution:- Payoff means the amount which is receivable on maturity.

Q: Explain what is meant by Accounting Rate of Return (ARR) and Net Present Value (NPV) in the context…

A: Solution:- Accounting Rate of Return (ARR):- It measures the expected profitability from any capital…

Q: A particular investment's rate of return is referred to as a "return on investment.

A: In response to the question The phrase "financial market" refers to items that are often seen in the…

Q: The net present value of an investment represents the difference between the:

A: The Answer :

Q: 1. Why methods and tools of the statistics are so important in investment decision making.

A: Hello. Since your question has multiple parts, we will solve the first question for you. If you want…

Q: Calculating the payback time is the most precise technique to determine the profitability of an…

A: Payback technique helps us to compute the time period in which the project's cash inflows cover the…

Q: Generally, the ____ is considered to be a more realistic reinvestment rate than the ____. a.…

A: Cost of capital is the required rate for make capital budgeting decision

Q: Evaluate the above offers using the investment evaluation techniques mention below without using…

A: MIRR or modified internal rate of return is an important capital budgeting tool. This tool is used…

Q: An investment should be rejected if the IRR is Group of answer choices - equal to the required rate…

A: Introduction: The internal rate of return (IRR) is a research and consulting metric used to assess…

Q: If the internal rate of return (IRR) is less than the cost of capital, then the investment is…

A: False If the internal rate of return (IRR) is less than the cost of capital, then the investment is…

Q: What do you mean by rate of return on the investment?

A: What do you mean by rate of return on the investment?

Q: Identify two disadvantages of using the payback period for comparing investments.

Q: When npv is negative, the discount rate is greater than the actual return on investment. A.…

A: Net present value is the method used in capital budgeting to analyse various investments, projects,…

Q: Whenever you make an investment decision, you need to consider its impacts on the diversification of…

A: Investment decision and diversification go hand in hand. One should be careful while making an…

Q: Make a simple example of the following: a. Capital Gain (or Losses) b. Expected Return c. Real…

A: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and…

Q: The expected value of an investment: Answer a. Is what the owner will receive when the investment is…

A: Expected Return refers to return anticipated by an investor while making investment. It may differ…

Q: Explain the difference between return of investment versus return on investment.

A: The ratio analysis helps to analyze the financial statements of the business.

Q: Which of the following methods does not consider the investment’s profitability? ARR Payback NPV…

A: Average rate of return (ARR) and Internal rate of return (IRR) are methods of computing rate of…

Q: ith the use of an example, briefly explain the main difference between the ex-ante and the ex-post…

A: Main Difference between ex-ante and the ex-post opportunity cost of capital: Ex-post risk is…

Q: “Explain the reasons why the net present value (NPV) method of investment appraisal is likely to be…

A: The Net Present Value (NPV) is a company's financial tool used to estimate the viability of…

Q: Which of the following statements describing the elements of intrinsic valuation is most accurate?…

A: Intrinsic value of any project or any assets is how value being added by asset to value of investors…

Q: If net present values are used to evaluate two investments that have equal costs and equal total…

A: Net Present Value is determined by discounting net cash flows by an appropriate required rate of…

Q: Why doesn’t an estimated absolute covariance number tell the investor much about the relationship…

A: Sample Covariance means the in which the investor has not much information about the rate of return…

Q: A realized return is the rate of return actually earned on an investment. Group of answer choices…

A: Return: Return is defined as the money attained or lost on an investment through certain time…

Q: In choosing where to invest, return and risk for an investment must be compared. It is not…

A: Return and risk are the different sides of the same coin. Both are directly related to each other.…

Q: Identify two problems of comparing investments using the payback time.

A: This question explains about investments using the payback time.

Q: If the internal rate of return (IRR) of a well-behaved investment alternative is equal to MARR,…

A: MARR is the minimum return the management requires from a project after adjusting the risks and…

Q: 1. Define the components of holding period return. Can any of these components be negative? 2. How…

A: Hello. Since your question has multiple parts, we will solve the first question for you. If you want…

Q: Describe the principles of asset valuation. Distinguish between the required rate of return and…

A: Asset Valuation means that a company or business is studied to understand what will be the intrinsic…

Q: In general, the the correlation between asset returns, the the risk reduction that investors can…

A: Correlation measures the extent to which two variables are interrelated. The correlation coefficient…

Q: Explain how sunk costs and cannibalisation affect the determination of an investment’s incremental…

A: Introduction : . Simply put, sunk costs refers to the costs that has already been incurred and the…

Q: Which of the following are the key factors when determining asset allocation for an investment? I.…

A: Asset allocation can be defined as the strategy which involves allotment of assets of portfolio of…

Question

The most accurate way to analyze the profitability of an investment is to compute the payback period.

A. True

B. False

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

When using the NPV method for a particular investment decision, if the present value of all cash Inflows Is greater than the present value of all cash outflows, then _______ . A. the discount rate used was too high B. the investment provides an actual rate of return greater than the discount rate C. the investment provides an actual rate of return equal to the discount rate D. the discount rate is too low
The third step for making a capital investment decision is to establish baseline criteria for alternatives. Which of the following would not be an acceptable baseline criterion? A. payback method B. accounting rate of return C. internal rate of return D. inventory turnover
This calculation determines profitability or growth potential of an investment, expressed as a percentage, at the point where NPV equals zero A. internal race of return (IRR) method B. net present value (NPV) C. discounted cash flow model D. future value method
What are the principal objections to the use of the average rate of return method in evaluating capital investment proposals?
Calculating the payback time is the most precise technique to determine the profitability of an investment. True B. Incorrect
Which approach to investment analysis is "best" in terms of accounting for both the timing and amount of revenue streams from a potential investment? A. the payback period B. the simple rate of return C. the net present value D. the internal rate of return
Which of the following methods does not consider the investment’s profitability? a. ARR b. Payback c. NPV d. IRR
Discuss how the Accounting Rate of Return as an investment appraisal method is better than the Net Present Value method.
What is the simple payback period? What is the net present value of the investment? What is the modified internal rate of return for the investment?
A realized return is the rate of return actually earned on an investment. Group of answer choices True False
Methods that ignore the time value of money in capital investment appraisal include which of the following? a. Net present valueb. Discounted payback c. Average rate of return d. All of the above
This method evaluates the return of an investment by dividing the annual average income by the average investment, Select one: a. Discounted Approach b. Simple rate of return Method c. Cash Payback Method d. Internal Rate of Return Method