1. Consider an investment with an initial cost of $20,000 and is that expected to last for 5 years. The expected cash flows in years 1 and 2 are $5,000, in years 3 and 4 are $5,500 and in year 5 is $1,000. The total cash inflow is expected to be $22,000 or an average of $4,400 per year. Compute the payback period in years.
a. 3.18 years
b. 3.82 years
c. 4.00 years
d. 4.55 years
e. None of the above
2. Modified internal rate of return:
a. Handles the multiple IRR problem by combining cash flows until only one change in sign change remains.
b. Requires the use of a discount rate.
c. Does not require the use of a discount rate.
d. Both A and B.
e. Both A and C.