Question

Which of the following is not true of the payback period method? Group of answer choices...

Which of the following is not true of the payback period method?

Group of answer choices

There is no objective criterion for what is an acceptable payback period.

It fails to take into account a project’s net cash flows.

It fails to take into account the time value of money.

It fails to take into account a project’s net cash flows after the payback period.

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Answer #1

Options:

1.There is no objective criterion for what is an acceptable payback period - This statement is true as payback period has no explicit criteria for a standalone project expect that payback period is less than infinity.

2.It fails to take into account a project’s net cash flows - This statement is false as payback calculation uses the project's net cash flows till the initial investment is recovered. Hence, this is the CORRECT OPTION

3.It fails to take into account the time value of money - This statement is true as payback period calculation doesn't take into consideration the present value of future cash flows.

4.It fails to take into account a project’s net cash flows after the payback period - This statement is true as the payback calculation is not concerened about future cash flows after the payback period is attained.

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