Which of the following statements best describes payback?
A) The shorter a project's payback period, the less 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 take account of cash flows beyond the payback period.
C) If a project's payback is positive, then the project should be accepted because it must have a positive NPV.
D) The regular payback ignores cash flows beyond the payback period, but the discounted payback method overcomes this problem.

Question

Quizplus · Accepted Answer

Payback does not take into account the time value of money or cash flows beyond the payback period, making it a limited criterion for evaluating projects. Additionally, a shorter payback period is generally seen as more desirable than a longer one, making statement A incorrect. Statement C is incorrect because positive payback does not necessarily indicate positive NPV. Statement D is partially correct, as the discounted payback method does consider the time value of money, but it still ignores cash flows beyond the payback period.

Which of the Following Statements Best Describes Payback