Spot the false rule

Exercise and reference answers

Questions

1. False statement

   Payback allows for the time value of money

   Statements

   1. Positive NPV projects should be accepted
   2. Negative NPV projects should be rejected
   3. Payback allows for the time value of money

2. False statement

   IRR is where the profile crosses the vertical axis

   Statements

   1. IRR is where the profile crosses the vertical axis
   2. IRR above the cost of capital means accept
   3. IRR below the cost of capital means reject

3. False statement

   NPV and PI can disagree on accept or reject

   Statements

   1. A PI above one means accept the project
   2. NPV and PI can disagree on accept or reject
   3. A PI below one means reject the project

4. False statement

   Discounted payback counts cash flows after breakeven

   Statements

   1. The payback period is simple to calculate
   2. Discounted payback discounts the cash flows first
   3. Discounted payback counts cash flows after breakeven

Instructions

Two statements are true and one is false. Tap the false one.

Explanation