1. An investment of $2,000 produces a net cash flow of $800 in the first year, and $2,000 in the second year. What is the payback period?

a. 1.60 years

b. 1.25 years

c. 0.50 years

d. 1.10 years

2. Which of the following is a deficiency of the payback period?

a. It helps control the risk of obsolescence.

b. It ignores the financial performance of the project beyond the payback period.

c. It is a rough measure of the uncertainty of future cash flows.

d. It considers the time value of money.

3. Assume there are two competing projects, X and Y. Project X has a NPV of $1,500 and an IRR of 16%. Project Y has a NPV of $1,000 and an IRR of 20%. Which of the following is true?

a. Neither project should be chosen.

b. It is not possible to choose between the two projects.

c. Project Y should be chosen because it has a higher IRR.

d. Project X should be chosen because it has a higher NPV.