Which of the following statements regarding discounted payback (DPB) is/are not true?

Multiple Choice

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  • It ignores any cash flows that accrue after the project reaches its respective payback benchmark.

  • Is a capital budgeting method that generates decision rules and associated metrics that choose projects based on how quickly they return their initial investment plus interest.

  • both a and b are not true.

  • none of the above.

  • Which of the following will increase the operating cycle?

    Multiple Choice

  • The cash cycle decreases by one day but the average payment period increases by two and a half days.

  • The days’ sales in inventory decreases by one day but the average collection period increases by two days.

  • COGS stays the same but inventory increases.

  • All of these choices are correct.

  • Which of the following is NOT a fundamental factor ignored by the target cash balance models?

    Multiple Choice

  • Firms have the option to borrow short-term to meet unexpected demands for cash.

  • The costs and delays of trading securities have fallen dramatically since the advent of the Internet.

  • Many large firms habitually use all or the majority of their available cash to purchase overnight securities.

  • Models take into account that many firms must keep compensating balances in their deposit accounts as part of borrowing agreements with their banks.


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