Financial Management - Study Mode

[#291] Payback period in which an expected cash flows are discounted with help of project cost of capital is classified as
Correct Answer

(A) discounted payback period

Explanation

Solution: Payback period in which an expected cash flows are discounted with help of project cost of capital is classified as discounted payback period.

[#292] In alternative investments, constant cash flow stream is equal to initial cash flow stream in approach which is classified as
Correct Answer

(B) equivalent annual annuity

Explanation

Solution: In alternative investments, constant cash flow stream is equal to initial cash flow stream in approach which is classified as equivalent annual annuity. The equivalent annual annuity approach is one of two methods used in capital budgeting to compare mutually exclusive projects with unequal lives. The EAA approach calculates the constant annual cash flow generated by a project over its lifespan if it was an annuity.

[#293] In capital budgeting, a negative net present value results in
Correct Answer

(C) negative economic value added

Explanation

Solution: Economic value added is the incremental difference in the rate of return over a company's cost of capital. In essence, it is the value generated from funds invested in a business. If the economic value added measurement turns out to be negative, this means that management is destroying the value of the funds invested in a business

[#294] Number of years forecasted to recover an original investment is classified as
Correct Answer

(A) payback period

[#295] In capital budgeting, term of bond which has great sensitivity to interest rates is
Correct Answer

(A) long-term bonds

Explanation

Solution: In capital budgeting, term of bond which has great sensitivity to interest rates is long-term bonds. Bond with a maturity period of more than 15 years. Long bonds pay higher interest rates but have greater credit and inflation risk. Also called long bond