1.Capital budgeting is the process of analyzing alternative long-term investments and deciding which assets to acquire or sell.
2.If the internal rate of return (IRR) of an investment is lower than the hurdle rate, the project should be accepted.
3.Neither the payback period nor the accounting rate of return methods of evaluating investments considers the time value of money.
4.An advantage of the break-even time (BET) method over the payback period method is that it recognizes the time value of money.
5.In ranking choices with the break-even time (BET) method, the investment with the longest BET gets the highest rank.
6.When computing payback period, the year in which a capital investment is made is year 1.
7.The payback period method of evaluating an investment fails to consider cash inflows after the point where an investment's costs are fully recovered.
8.The time value of money is considered when calculating the payback period of an investment.
9.Two investments with exactly the same payback periods are not equally valuable to an investor because the timing of net cash flows may be different.
10.The payback period method, unlike the net present value method, does not ignore cash flows after the point of cost recovery.