Which statement regarding payback is true?
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

The statement that "One drawback of the payback criterion for evaluating projects is that this method does not take account of cash flows beyond the payback period" is true. A shorter payback period is generally considered more desirable, making statement A incorrect. C is false because a positive payback period only means that the initial investment has been returned and does not necessarily indicate a positive NPV. While statement D is partially true, the discounted payback method still has limitations in accurately evaluating projects that have longer-term cash flows.

Which Statement Regarding Payback Is True