Which of the following statements about the payback method is true?
A) The payback method is consistent with the goal of shareholder wealth maximization
B) The payback method represents the number of years it takes a project to recover its initial investment plus a required rate of return.
C) There is no economic rational that links the payback method to shareholder wealth maximization.
D) None of the above statements are true.

Question

Quizplus · Accepted Answer

The payback method does not take into account the time value of money or the total profitability of a project, and therefore there is no economic rational that links it to shareholder wealth maximization. Option A and B are incorrect because the payback method does not consider the goal of shareholder wealth maximization or the required rate of return.

Which of the Following Statements About the Payback Method Is