Which of the Following Statements Describes the Modified Payback Method

question 28

Short Answer

Which of the following statements describes the modified payback method? a. We compute how long it takes to recoup the initial investment using undiscounted cash flows.
B) The method accumulates the present value of future cash flows over time and compares the cumulative value with the salvage value of the capital expenditure.
C) The method accumulates the absolute value of future cash flows over time and compares the cumulative value with the present value of the capital expenditure.
D) The year in which the accumulated present value of future cash flows exceeds the initial cash outflow determines the modified payback period.
E) None of the above describes the modified payback method.

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Definitions:

Cost of Equity

The return a company must offer investors to compensate for the risk of investing in its equity.

After-Tax Cash Flows

The net cash inflow or outflow after taking into account the effects of taxation.

After-Tax Cost

The expense of a transaction or investment after taking into account the effects of taxes.

Net Present Value

A valuation method that calculates the present value of an investment's expected cash inflows and outflows, used to assess its profitability.