Questions - Please answer question 2 & 4.
No more than 100 words per question needed. Just keep it simple. 1 or 2 sentences to get the point across is acceptable.
1. What are the principal objections to the use of the average rate of return method in evaluating capital investment proposals?
2. Discuss the principal limitations of the cash payback method for evaluating capital in-vestment proposals.
3. Why would the average rate of return differ from the internal rate of return on the same project?
4. What information does the cash payback period ignore that is included by the net present value method?
5. Your boss has suggested that a one-year payback period is the same as a 100% average rate of return. Do you agree?
6. Why would the cash payback method understate the attractiveness of a project with a large residual value?