Which of the following is true regarding the payback method?
A)One advantage of the payback method for evaluating potential investments is that it provides some information about a project's liquidity and risk.
B)One advantage of the payback method for evaluating potential investments is that it provides the total profit to be earned from a project.
C)One advantage of the payback method for evaluating potential investments is that it provides some information about a project's risk and cash flow from equity.
D)One advantage of the payback method for evaluating potential investments is that it provides some information about a project's liquidity and its IRR profile.

Question

Quizplus · Accepted Answer

The payback method measures the amount of time it takes to recover the initial investment, so it provides information about a project's liquidity (how quickly cash can be generated from the investment) and risk (shorter payback periods are less risky). It does not provide information about total profit or IRR profile.

Which of the Following Is True Regarding the Payback Method