Which of the following statements about the evaluation of an investment having uneven cash flows using the payback method is correct?
A) It CANNOT be done.
B) It can be done only by matching cash inflows and investment outflows on a year-by-year basis.
C) It will produce essentially the same results as those obtained through the use of discounted cash flow techniques.
D) It requires the use of a sophisticated calculator or computer software.

Question

Quizplus · Accepted Answer

The payback method can be used to evaluate an investment with uneven cash flows by matching cash inflows and investment outflows on a year-by-year basis. It does not require sophisticated calculations or discounted cash flow techniques. Option A is incorrect because it is possible to use payback method for such investments. Option C is not true because discounted cash flow techniques consider the time value of money and produce different results from the payback method. Option D is not correct because the payback method only requires simple arithmetic calculations.

Which of the Following Statements About the Evaluation of an Investment