Mod 4 Econ (Concepts)

It is a financial efficiency that measures the effectiveness of an investment of capital

• Rate of Return

• Annual Worth

• Payback Period

• Present Worth

Rate of Return is easily understood by management and investors.

• True

• False

It is necessary to decide whether the computed Rate of Return is sufficient to justify the investment.

• True

• False

The capital invested is the total amount of capital investment required to finance the project, whether equity or borrowed.

• True

• False

This method is covered by the same limitations as the ROR.

• Present Worth

• Future Worth

• Annual Worth

• Payback Period

It is where the interest on the original investment (called MRP) is included as a cost.

• Annual Worth

• Present Worth

• ROR

• Future Worth

If the excess of the annual cash inflows over annual cash outflows is less than zero, the proposed investment is justified

• True

• False

Answer explanation

Excess of the annual cash inflows over annual cash outflows should be NOT less than zero for it to be Justified.

In general, for the project to be acceptable: Annual Worth should be greater than Zero

• True

• False

If PW of the net cash flows equal or less than zero, the project is justified economically

• True

• False

Answer explanation

PW of the net cash flows equal or GREATER than zero

It is flexible and can be used for any type of economy study.

• Present Worth

• Annual Worth

• Future Worth

• ROR