罗斯公司理财第六版习题答案第6章.docVIP

B Answers to End-of-Chapter Problems B Answers to End-of-Chapter Problems Chapter 6: Some Alternative Investment Rules Concept Questions - Chapter 6 6.2 ? List the problems of the payback period rule. It does not take into account the time value of money. It ignores payments after the payback period. The cutoff period is arbitrary. ? What are some advantages? It is simple to implement. It may help in controlling and evaluating managers. 6.4 ? What are the three steps in calculating AAR? Determine average net income. Determine average investment Divide average net income by average investment. ? What are some flaws with the AAR approach? It uses accounting figures. It takes no account of timing. The cutoff period is arbitrary. 6.5 ? How does one calculate the IRR of a project? Using either trial-and-error or a financial calculator, one finds the discount rate that produces an NPV of zero. 6.6 ? What is the difference between independent projects and mutually exclusive projects? An independent project is one whose acceptance does not affect the acceptance of another. A mutually exclusive project, on the other hand is one whose acceptance precludes the acceptance of another. ? What are two problems with the IRR approach that apply to both independent and mutually exclusive projects? The decision rule depends on whether one is investing of financing. Multiple rates of return are possible. ? What are two additional problems applying only to mutually exclusive projects? The IRR approach ignores issues of scale. The IRR approach does not accommodate the timing of the cash flows properly. 6.7 ? How does one calculate a projects profitability index? Divide the present value of the cash flows subsequent to the initial investment by the initial investment. ? How is the profitability index applied to independent projects, mutually exclusive projects, and situations of capital rationing? With independent projects, accept the project if the PI is greater than 1.0 and