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) One drawback of the regular payback for evaluating projects is that this method does not properly account for the time value of money.
B) If a project's payback is positive, then the project should be rejected because it must have a negative NPV.
C) The regular payback ignores cash flows beyond the payback period, but the discounted payback method overcomes this problem.
D) If a company uses the same payback requirement to evaluate all projects, say it requires a payback of 4 years or less, then the company will tend to reject projects with relatively short lives and accept long-lived projects, and this will cause its risk to increase over time.
E) The longer a project's payback period, the more desirable the project is normally considered to be by this criterion.

Question

Quizplus · Accepted Answer

One drawback of the regular payback method is that it doesn't take into account the time value of money. This means that the method doesn't adjust the cash flows for the fact that a dollar received in the future is worth less than a dollar received today. Therefore, the regular payback method may not provide an accurate measure of the profitability of a project.

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