Chapter 8 business finance

If a project with conventional cash flow has a payback period less than its life, can you definitively state the algebraic sign of the NPV? Why or why not?
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A payback period less that the project's life means that the NPV is positive for a zero discount rate, but nothing more definitive can be said. For discount rates greater that zero, the payback period will still be less than the project's life, but the NPV may be positive, zero, or negative, depending on whether the discount rate is less than, equal to, or greater than the IRR
Problems: the selection of a cutoff is arbitrary, and the time value of money is ignored.
The reliance on accounting number rather that relevant market data and the exclusion of time value of money. considerations are troubling.
Used in practice because the accounting information is usually available, the analysts often use accounting ratios to analyze firm performance, and managerial compensation is often tied to the attainment of certain target accounting ratio goals