30. Which one of the following statements is correct? A. The internal B. The pay

Question

30. Which one of the following statements is correct? A. The internal B. The payback method is biased toward short-term projects rate of return is the most reliable method of analysis for any type of investment decision. C. The modified internal rate of return is most useful when projects are mutually exclusive D. The average accounting return is the most difficult method of analysis to compute E. The net present value method is applicable only if a project has conventional cash flows. 31. Which of the following terms can be used to describe unsystematic ri I. Asset-specific risk 11. Diversifiable risk II1. Market risk IV. Unique risk A. I and IV only B. II and Ill only C. I, 1, and IV only D. I, , and IV only E. I, , , and IV

Explanation / Answer

30.B.The Payback method is biased towards the short term projects

Payback Period = the number of years in which the initial cost will be recovered.

Since, lesser cost is incurred in short term projects and is recovered earlier than long term projects requiring big investments, the payback method is biased towards the short term projects

31. Unsystematic Risk refers to the company specific risk. Other companies of the same industry and other industries are not affected by this risk.

Terms used to describe are:

Hence, C- I, II and IV only

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