Asked by Y. M. Hylton on Jun 23, 2024
Verified
Which capital investment evaluation technique is described by the following characteristics? (1) Easy to understand; (2) Biased towards liquidity; (3) Requires an arbitrary cutoff point; (4) Ignores the time value of money.
A) NPV
B) IRR
C) Profitability index
D) Payback period
E) Discounted payback
Arbitrary Cutoff Point
A subjective point or threshold set by decision-makers or researchers, beyond which certain actions are taken, rules applied, or categorizations made.
Time Value
The time value concept in finance recognizes that money available now is worth more than an identical sum in the future due to its potential earning capacity.
Liquidity
The simplicity of turning an asset into cash without noticeably impacting its market value.
- Familiarize yourself with the payback and discounted payback approaches and understand their drawbacks.
Verified Answer
Learning Objectives
- Familiarize yourself with the payback and discounted payback approaches and understand their drawbacks.
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