The payback method is a convenient and useful tool because
A)it provides a quick estimate of how rapidly an initial investment will be recouped.
B)it considers all of a project's relevant cash flows.
C)it considers the time value of money.
D)the required payback period for all of a firm's projects must be identical.
E)it only considers the cash flows within the current period of 12 months.

Question

Quizplus · Accepted Answer

The payback method provides a quick estimate of how rapidly an initial investment will be recouped, making it a convenient and useful tool for evaluating projects with shorter time horizons or where liquidity is a concern. However, it does not consider all of a project's relevant cash flows, the time value of money, or the required payback period for all of a firm's projects. Additionally, it only considers cash flows within a specified timeframe, usually the next several years.

The Payback Method Is a Convenient and Useful Tool Because