Asked by Shakia Balmer on Jul 07, 2024
Verified
Which one of the following statements about the payback method of capital budgeting i? correct?
A) The payback method considers cash flows after the payback has been reached.
B) The payback method uses discounted cash flow techniques.
C) The payback method does not consider the time value of money.
D) The payback method will lead to the same decision as other methods of capital budgeting.
Payback Method
A basic investment appraisal technique that calculates the time required to recoup the cost of an investment.
Time Value of Money
The concept that money available now is worth more than the same amount in the future due to its potential earning capacity.
Capital Budgeting
The process of planning significant investments in projects that have long-term implications such as the purchase of new equipment or the introduction of a new product.
- Assess and clarify the payback duration for financial ventures.
Verified Answer
LB
Laura BowersJul 07, 2024
Final Answer :
C
Explanation :
The payback method simply calculates the time it takes for the initial investment to be repaid by the cash inflows, without considering the time value of money, which differentiates it from methods that use discounted cash flows.
Learning Objectives
- Assess and clarify the payback duration for financial ventures.