Asked by
Aaron Weyant Jr
on Oct 14, 2024
Verified
A disadvantage of using the payback period to compare investment alternatives is that:
A) It ignores cash flows beyond the payback period.
B) It includes the time value of money.
C) It cannot be used when cash flows are not uniform.
D) It cannot be used if a company records depreciation.
E) It cannot be used to compare investments with different initial investments.
Payback Period
The duration required to recover the initial investment in a project or asset, based on the cash inflows that the investment generates.
Time Value
The principle that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.
- Understand the limitations of the payback period method in capital budgeting, especially its disregard for the time value of money and cash flows beyond the payback period.
Verified Answer
SY
Learning Objectives
- Understand the limitations of the payback period method in capital budgeting, especially its disregard for the time value of money and cash flows beyond the payback period.