Payback is frequently used to analyze independent projects because:
A) It considers the time value of money.
B) All relevant cash ﬂows are included in the analysis.
C) The cost of the analysis is less than the potential loss from a faulty decision.
D) It is the most desirable of all the available analytical methods from a ﬁnancial perspective.
E) It produces better decisions than those made using either NPV or IRR.

Question

Quizplus · Accepted Answer

Payback is a simple and quick method of analysis that does not consider the time value of money or all relevant cash flows. Therefore, it is not the most desirable of all the available analytical methods from a financial perspective, nor does it necessarily produce better decisions than those made using NPV or IRR. However, it may still be a useful tool in situations where the cost of the analysis is less than the potential loss from a faulty decision.

Payback Is Frequently Used to Analyze Independent Projects Because