Question

Which of the following statements concerning the payback period is NOT true

A.

The payback period is simple to calculate and understand.

B.

The payback period measures the time that a project will take to generate enough cash flows to cover the initial investment.

C.

The payback period ignores cash flows after the payback period has been achieved.

D.

The payback period takes account of the time value of money.

Answer #1

**Answer: D) The payback period takes account of the time
value of money.**

The payback period does not take account of the time value of money.

**Payback Period**

The payback period measures the time that a project will take to
generate enough cash flows to cover the initial investment. The
shorter the payback, the more desirable the investment. If longer
payback, then less desirable it is. **For example**,
if a project cost $50,000 to implement and the returns (cash flows)
are $10,000 per year,then it would take 5 years to reach the
payback period.

----

**Hope you understood.**

**Thank you.**

Concerning payback, which of the following statements is
true?
a) Payback is no longer used since it ignores the time value of
money.
b) Payback can only be used on simple projects since it cannot
deal with cash flow.
c) Payback period varies inversely with the benefit-cost ratio:
the shorter the payback period, the higher the benefit-cost.
d) Payback is only used for capital intensive projects.

Which of the following statements about the "payback period" is
true?
The payback period fails to produce an objective decision to
accept or reject an individual project.
The payback period considers the time value of money.
The payback period uses discounted cash-flow techniques.
The payback period considers cash flows after the payback has
been reached.

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.

11. The NPV and payback period
What information does the payback period provide?
A project’s payback period (PB) indicates the number of years
required for a project to recover its initial investment using its
operating cash flows. As the theoretical soundness of the
conventional (undiscounted) PB technique was criticized, the model
was modified to incorporate the time value of money-adjusted
operating cash flows to create the discounted payback method. While
both payback models continue to reflect faulty ranking criteria,
they...

Payback period essentially provides the number of years it would
take for a project to recover the initial investment from its
operating cash flows. As the model was criticized, the model
evolved incorporating time value of money to create the discounted
payback method. The models still reflected faulty ranking criteria
but they provided important information about liquidity and
risk.
Cash flows expected in the distant future aremore
risky than cash flows received in the near-term—which
suggests that the payback period...

Payback period essentially provides the number of years it would
take for a project to recover the initial investment from its
operating cash flows. As the model was criticized, the model
evolved incorporating time value of money to create the discounted
payback method. The models still reflected faulty ranking criteria
but they provided important information about liquidity and
risk.
Cash flows expected in the distant future are
more/less risky than cash flows received in the
near-term—which suggests that the payback...

Four of the following statements are truly disadvantages of the
regular payback method, but one is not a disadvantage of this
method. Which one is NOT a disadvantage of the payback method? a.
Ignores cash flows beyond the payback period. b. Does not directly
account for the time value of money. c. Does not provide any
indication regarding a project’s liquidity or risk. d. Lacks an
objective, market-determined benchmark for making decisions. e.
Does not take account of differences in...

7. The NPV and payback
period
What information does the payback period
provide?
Suppose Extensive Enterprises’s CFO is evaluating a project with
the following cash inflows. She does not know the project’s initial
cost; however, she does know that the project’s regular payback
period is 2.5 years.
Year
Cash Flow
Year 1
$325,000
Year 2
$500,000
Year 3
$450,000
Year 4
$450,000
If the project’s weighted average cost of capital (WACC) is 8%,
what is its NPV?
$367,583
$312,446
$404,341...

The NPV and payback period
Suppose you are evaluating a project with the cash inflows shown
in the following table. Your boss has asked you to calculate the
project’s net present value (NPV). You don’t know the project’s
initial cost, but you do know the project’s regular, or
conventional, payback period is 2.50 years.
The project's annual cash flows are:
Year
Cash Flow
Year 1
$400,000
Year 2
600,000
Year 3
500,000
Year 4
475,000
If the project’s desired rate...

7. The NPV and payback period
Suppose you are evaluating a project with the cash inflows shown
in the following table. Your boss has asked you to calculate the
project’s net present value (NPV). You don’t know the project’s
initial cost, but you do know the project’s regular, or
conventional, payback period is 2.50 years.
The project's annual cash flows are:
Year
Cash Flow
Year 1
$350,000
Year 2
600,000
Year 3
600,000
Year 4
450,000
If the project’s desired...

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