Asked by Kevin Oxrider on Jul 07, 2024
Verified
Which of the following techniques ignores the time value of money?
A) NPV
B) IRR
C) Payback
D) All of the above consider the time value of money.
Payback Period
The length of time it takes for an investment to generate cash flows sufficient to recover its initial cost, often used to evaluate the profitability of an investment.
Time Value
The concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.
- Comprehend the constraints and factors to consider when utilizing the internal rate of return (IRR) technique.
- Make distinctions between net present value (NPV) and internal rate of return (IRR) strategies, and understand the conditions that can result in disparate outcomes.
Verified Answer
GC
Giovanni CuellarJul 08, 2024
Final Answer :
C
Explanation :
Payback ignores the time value of money by only looking at the number of years it takes to recover the initial investment, without considering the value of money over time. NPV and IRR, on the other hand, explicitly consider the time value of money in their calculations.
Learning Objectives
- Comprehend the constraints and factors to consider when utilizing the internal rate of return (IRR) technique.
- Make distinctions between net present value (NPV) and internal rate of return (IRR) strategies, and understand the conditions that can result in disparate outcomes.
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