The payback method
A)discounts all cash flows properly.
B)requires each firm to set a firmwide cash flow cutoff period.
C)considers all relevant cash flows.
D)superior to the net present value method.
E)ignores the time value of money.

Question

Quizplus · Accepted Answer

The payback method ignores the time value of money, which means that it does not discount future cash flows. This is a significant drawback, as it can lead to incorrect investment decisions. Therefore, the payback method is not considered superior to the net present value method, which does take into account the time value of money.

The Payback Method