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Homework answers / question archive / Which one of the following indicates an accept decision for an independent project with conventional canto Select one: a
Which one of the following indicates an accept decision for an independent project with conventional canto Select one: a. AAR lower than the required rate b. Discounted payback period less than the payback period c. Payback period that exceeds the requirement d. Required discount rate greater than the IRR e. Pl greater than 1.0
Answer (e) Profitability Index (PI) greater than 1.0;
Incase of selection of the Project with future cash flows, the capital budgeting techniques like Net Present Value, Internal Rate of Return, Payback Period, PI, etc are used to evaluate the feasibilty of the Project;
The Required of Return or MARR or WACC is the Cost of Capital at which the futher cash flows are discounted to the present value and is considered as the base rate to which the minimum returns are expected from the Project.
Hence, options (a) and (d) are incorrect. Similarly, the Payback period should as lower as possible and definitely should be lower than the life of the Project; Hence, options (b) and (c) are incorrect; Due to discount factor, the discounted payback period in anyways shall be higher than that of the normal payback period.
