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D 775 / D775 Pre - Assessment (Latest Update 2025 / 2026) Introduction to Business Finance | Questions & Answers | 100% Correct | Grade A - WGU
Question:
A company is considering a project that requires a $60,000 investment. The project is expected to recover its initial cost in four years.
What is the drawback of using the payback period as the sole investment evaluation metric?
Answer:
It ignores the cash flows beyond the four-year payback period, which may be substantial.
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Question:
Which aspect of investment analysis does the payback period fail to address adequately?
Answer:
Time value of money
Question:
A consumer goods firm is evaluating a new project to open new stores in malls. After analyzing the projected cash flows, the company determines that the project has a negative Net Present Value (NPV).
What does this indicate about the project?
Answer:
The initial project investment exceeds the present value of projected cash inflows.
Question:
A retail chain is evaluating a project with an IRR of 9%. The company's required rate of return is 12%.
Should the retail chain proceed with this project?
Answer:
No, the IRR is below the required return 2 / 3
Question:
Sparkit, a software development company, is considering an investment of $350,000 in a new payroll software project. The product is expected to generate incremental cash inflows of $100,000 annually for the next five years.The company follows a strict payback rule, requiring investments to recover their costs within three years to be considered. The finance team calculates the project payback period to be 3.5 years
Should Sparkit proceed with this investment based on the payback rule?
Answer:
No, the investment will not recover its costs within the three-year guideline.
Question:
A company is evaluating four prospective investments: Project A, Project B,
Project C, and Project D. All four investments have a 14% IRR. The company's cost of capital is 10%.
Which additional information should the company consider when ranking the four projects if the company is cash-constrained?
Answer:
Initial investment
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