The accounting rate of return method has two weaknesses. It ignores the time value of money, and it does not directly consider cash flows and their timing.

T/F

The net present values for three alternative investment projects follow: Project A, $24,000; Project B, $40,000; and Project C, $(10,000). If the company can only choose one project, it will choose Project A.

T/F

Coffer Company is analyzing two potential investments.

	Project X	Project Y
Cost of machine	$ 77,000	$ 55,000
Net cash flow:
Year 1	28,000	2,000
Year 2	28,000	25,000
Year 3	28,000	25,000
Year 4	0	20,000

If the company is using the payback period method, and it requires a payback period of three years or less, which project(s) should be selected?

Multiple Choice

• Project Y.

• Project X.

• Both X and Y are acceptable projects.

• Neither X nor Y is an acceptable project.

• Project Y because it has a lower initial investment.