Which one of the following statements about the payback method of capital budgeting is correct?
A)The payback method does not consider the time value of money.
B)The payback method considers cash flows after the payback has been reached.
C)The payback method uses discounted cash flow techniques.
D)The payback method will lead to the same decision as other methods of capital budgeting.

Question

Quizplus · Accepted Answer

The payback method does not consider the time value of money, meaning that future cash flows are not discounted to their present value. Instead, this method simply calculates the amount of time it takes for a project to recoup its initial investment.

Which One of the Following Statements About the Payback Method