The payback method is a convenient and useful tool because
A)it provides a quick estimate of how rapidly an initial investment will be recouped.
B)it considers all of a project's relevant cash flows.
C)it considers the time value of money.
D)the required payback period for all of a firm's projects must be identical.
E)it only considers the cash flows within the current period of 12 months.

Question

Quizplus · Accepted Answer

The payback method provides a quick estimate of how rapidly an initial investment will be recouped. This makes it a convenient tool for evaluating the feasibility of potential projects. However, it does not consider all of a project's relevant cash flows and does not consider the time value of money. The required payback period for all of a firm's projects is not necessarily identical, as different projects may have different investment horizons or risk profiles. Additionally, the payback method typically looks only at cash flows within a limited time frame, often 3-5 years, rather than the full life of the project.

The Payback Method Is a Convenient and Useful Tool Because