Asked by DAVID WHITLOCK on May 09, 2024
Verified
Which statement regarding payback is true?
A) The regular payback method recognizes all cash flows over a project's life.
B) The discounted payback method recognizes all cash flows over a project's life, and it also adjusts these cash flows to account for the time value of money.
C) The regular payback method was widely used years ago, but virtually no companies even calculate the payback today.
D) The regular payback is useful as an indicator of a project's liquidity because it gives managers an idea of how long it will take to recover the funds invested in a project.
Discounted Payback
A capital budgeting method that calculates the time it takes to recoup an investment's initial costs, taking the time value of money into account.
Time Value of Money
The concept that money available at the present time is worth more than the same amount in the future due to its earning capacity.
Project's Liquidity
The ease with which a project's assets can be converted into cash without significant loss of value.
- Grasp the concept of payback methods and their limitations.
Verified Answer
Learning Objectives
- Grasp the concept of payback methods and their limitations.
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