Which of the Following Statement Regarding the Payback Method Is

question 16

Multiple Choice

Which of the following statement regarding the payback method is incorrect?

• A)The payback period is the amount of time it takes for a capital investment to "pay for itself."
• B)In general,projects with longer payback periods are safer investments than those with shorter payback periods.
• C)When cash flows are equal each year,the payback period is calculated by dividing the initial investment in the project by its annual cash flow.
• D)The payback method is often used as a screening tool for potential investments.

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Definitions:

Compounded Semi-Annually

Interest calculation method where interest is added to the principal twice a year, leading to interest on interest.

Strip Bonds

Bonds that have had their principal and coupon payments separated, creating individual securities from each interest payment and the principal.

Compound-Interest GIC

A Guaranteed Investment Certificate where the interest earned is compounded at regular intervals, allowing the investment to grow at a faster rate compared to simple interest.

Maturity Value

The amount to be paid to the holder of a financial instrument at the end of its term or at maturity.