Which of the following figures of merit might not use all possible cash flows in its calculations?
I.Payback period
II.Internal rate of return
III.Net present value (NPV)
IV.Accounting rate of return
A) III only
B) I & III only
C) II & III only
D) I & IV only
E) III & IV only
F) I, II, III, and IV

Question

Quizplus · Accepted Answer

Payback period only considers the initial investment and the cash flows up to the point where the initial investment has been fully recovered. Accounting rate of return considers profits and not cash flows, hence not all possible cash flows are used. Internal rate of return and net present value use all possible cash flows.

Which of the Following Figures of Merit Might Not Use