Author Question: Some firms use the payback period as a decision criterion or as a supplement to sophisticated ... (Read 31 times)

P68T · **on:** Apr 25, 2021

Question 1

Sara Flea Collar Inc. is evaluating an overseas expansion that will cost $1 million and is expected to generate the following cash flows: year 1: -$250,000; year 2: +$450,000; year 3: +$550,000; and year 4: +$800,000. What is the payback period?
◦ 3.00 years
◦ 3.13 years
◦ 3.31 years
◦ 3.75 years
◦ 4.00 years

Question 2

Some firms use the payback period as a decision criterion or as a supplement to sophisticated decision techniques, because
◦ it explicitly considers the time value of money.
◦ it can be viewed as a measure of risk exposure.
◦ the determination of payback is an objectively determined criteria.
◦ it can take the place of the net present value approach.

Jmfn03 · **Reply #1 on:** Apr 25, 2021

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