Which statement below is true about the evaluation of an investment having uneven cash flows using the payback method?
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 investments with uneven cash flows by matching the cash inflows and investment outflows on a year-by-year basis. This involves determining the number of years it will take for the cumulative cash inflows to equal the initial investment. However, the payback method does not take into account the time value of money, unlike discounted cash flow techniques. Therefore, it may not produce the same results as these methods. The use of a sophisticated calculator or computer software is not necessary for the application of the payback method.

Which Statement Below Is True About the Evaluation of an Investment