Which of the following statements is correct? Assume that the project being considered has normal cash flows,with one outflow followed by a series of inflows.
A)The longer a project's payback period, the more desirable the project is normally considered to be by this criterion.
B)One drawback of the payback criterion for evaluating projects is that this method does not properly account for the time value of money.
C)If a project's payback is positive, then the project should be rejected because it must have a negative NPV.
D)The regular payback ignores cash flows beyond the payback period, but the discounted payback method overcomes this problem.

Question

Quizplus · Accepted Answer

The payback criterion does not consider the time value of money. This means that future cash flows are not discounted to their present value, which can result in incorrect project evaluations. Therefore, option B is the correct statement. Options A and C are incorrect since a longer payback period is generally considered less desirable and a positive payback does not necessarily mean a negative NPV. Option D is partially correct but does not address the entire issue with the payback method.

Which of the Following Statements Is Correct? Assume That the Project