Question

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.

Answer #1

Correct answer is option **(a). Payback is no longer used
since it ignores the time value of money.**

Explanation;

As we know that payback period tell about the number of years in which initial investment will be recovered but it does not consider time value of money that is why payback period method is not used as trusted method of project evaluation.

NPV method is considered as highly reliable method of project evaluation because it helps in knowing true positive or negative net present value of prospective project.

Hence we can say that “Payback is no longer used since it ignores the time value of money.” Is correct statement.

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.

Which one of the following statements is correct? A longer
payback period is preferred over a shorter payback period. The
payback rule states that you should accept a project if the payback
period is less than one year. The payback period ignores the time
value of money. The payback rule is biased in favor of long-term
projects. The payback period considers the timing and amount of all
of a project's cash flows.

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 statements is true concerning the
matching principle?
a. All costs can be indirectly matched with periods in which
they provide a benefit.
b. The association of assets for a period with the liabilities
necessary to generate the assets is known as the matching
principle.
c. Cost of goods sold matched with sales revenue is a classic
example of direct matching under the matching principle.
d. All costs can be directly matched with revenue.

Which of the following statements is true concerning the
recording of a budget?
a.
At the beginning of the year debit Appropriations.
b.
At the beginning of the year debit Estimated Revenues.
c.
Budget information is only recorded in the General Fund.
d.
Budgets should not be used as a means of evaluating
performance.

Which of the following statements concerning regression and
correlation analysis is/are true?
A. If the correlation coefficient is zero, then there is no linear
relationship between the two variables.
B. A negative value for the correlation coefficient indicates that
high values of the independent variable are correlated with low
values of the dependent variable.
C. The slope coefficient for a simple linear regression model
measures the expected change in the independent variable for a unit
change in the dependent variable....

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...

Which of the following statements concerning performance
evaluation tools used in decentralized operations is correct?
A. A segment’s return on investment can be calculated by
multiplying the segment’s sales margin percentage by its capital
turnover ratio.
B. Segment margin is calculating by subtracting the common fixed
costs allocated to a segment from the segment’s contribution
margin.
C. A positive residual income indicates that a segment’s return
on investment is less than the company’s target rate of
return.
D. Performance reports...

Which of the following is true concerning inventory cost flow
assumptions?
LIFO produces higher net income than FIFO in a period of rising
costs.
None of the other answers are true.
FIFO is an income statement focus.
LIFO is a balance sheet focus.

Which of the following statements is not true concerning
installment reporting?
1) At least one payment is to be received after the close of the
year in which a sale of property is made.
2) The installment method allows gain to be spread over more
than one year.
3) The gross profit rate is used to determine the portion of the
payment received that is reported as income.
4) An advantage of the installment method is that the dollar
amount...

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