The payback method of capital budgeting approach to an investment decision ________.
A) considers cash flows over the life of the investment
B) assumes that cash flows occur uniformly throughout the year
C) considers time value of money
D) ignores the initial investment

Question

Quizplus · Accepted Answer

The payback method typically assumes that cash flows occur uniformly throughout the year, simplifying the calculation by not accounting for variations in cash flow timing within each period. It does not consider the time value of money (unlike methods such as NPV or IRR), it does not ignore the initial investment (as it is focused on how long it takes to recover this initial outlay), and it does not consider cash flows over the entire life of the investment if the payback period is shorter than the investment's life.

The Payback Method of Capital Budgeting Approach to an Investment