Asked by Juliana Quintero on Jul 15, 2024
Verified
The payback period method,unlike the net present value method,does not ignore cash flows after the point of cost recovery.
Net Present Value
The difference between the present value of cash inflows and the present value of cash outflows over a period of time.
Payback Period
The length of time required to recover the cost of an investment or determine how long it takes for an asset to generate enough cash flow to cover its original cost.
Cost Recovery
The process by which an entity regains the capital expenditure of an investment over time, through various methods such as depreciation, amortization, or depletion.
- Investigate the importance of the payback period, internal rate of return (IRR), and net present value (NPV) in financial decision-making regarding investments.
Verified Answer
FJ
Fidel JohnathanJul 17, 2024
Final Answer :
False
Explanation :
The payback period method focuses only on the time it takes to recover the initial investment, ignoring any cash flows that occur after the cost recovery point, unlike the net present value method which considers all cash flows over the project's life.
Learning Objectives
- Investigate the importance of the payback period, internal rate of return (IRR), and net present value (NPV) in financial decision-making regarding investments.