Which of the following is a reason for firms not using the payback method as a guideline in capital investment decisions?
A) It gives an explicit consideration to the timing of cash flows.
B) It cannot be specified in light of the wealth maximization goal.
C) It is a measure of risk exposure and projects the possibility of a calamity.
D) It is easy to calculate and has intuitive appeal.

Question

Quizplus · Accepted Answer

The payback method only considers the timing of cash flows and does not take into account the wealth maximization goal, which is the primary objective of firms. Therefore, it cannot be specified in light of the wealth maximization goal, which makes it unsuitable as a guideline in capital investment decisions. Choices A, C, and D are incorrect because they do not provide reasons for firms not using the payback method as a guideline in capital investment decisions.

Which of the Following Is a Reason for Firms Not