Which one of the following is an advantage of the payback method of evaluating capital investment proposals?
A) It provides a (rough) measure of project risk.
B) It is linearly related to the net present value (NPV) of a proposed project.
C) It considers all possible future cash flows of the project.
D) It applies conventional discounting procedures to anticipated future cash flows.
E) It allows managers to choose between competing projects with different useful lives.

Question

Quizplus · Accepted Answer

The payback method provides a rough measure of project risk by indicating how quickly the initial investment can be recovered. A shorter payback period is generally less risky than a longer payback period. However, it does not consider the time value of money or all future cash flows, and may not be the best tool for evaluating long-term projects.

Which One of the Following Is an Advantage of the Payback