Which capital investment evaluation technique is described by the following characteristics? (1) Easy to understand; (2) Biased towards liquidity; (3) Requires an arbitrary cutoff point; (4) Ignores the time value of money.
A) NPV
B) IRR
C) Profitability index
D) Payback period
E) Discounted payback

Question

Quizplus · Accepted Answer

The Payback Period method is described by the characteristics mentioned: it is simple and easy to understand, focuses on how quickly the initial investment can be recovered (hence, biased towards liquidity), requires a decision on an arbitrary cutoff point by which the investment should be paid back, and does not take into account the time value of money, unlike methods such as NPV or Discounted Payback.

Which Capital Investment Evaluation Technique Is Described by the Following