Why do managers suggest that ignoring all cash flows following the required payback period is not a major flaw of the payback method of capital budgeting analysis?
A)Payback is never used in real practice so it makes no difference how academics apply the method in their studies.
B)All projected cash flows after the required period are highly inaccurate so including them lessens the reliability of the resulting decision.
C)If the cash flows after the required period are significant,managers will use their discretion to override the payback rule.
D)All cash flows after the required period are relatively worthless in today's dollars so ignoring them has no consequence.
E)Any consideration of the cash flows after the required period rarely has any effect on the accept/reject decision.

Question

Quizplus · Accepted Answer

Managers may use their discretion to consider significant cash flows occurring after the payback period, which allows for flexibility in decision-making beyond the rigid application of the payback method.

Why Do Managers Suggest That Ignoring All Cash Flows Following