$$\text { Reference: 10-01 }$$ Shields Company Has Gathered the Following Data on a Proposed

question 23

Multiple Choice

$$\text { Reference: 10-01 }$$ Shields Company has gathered the following data on a proposed investment project: $$\begin{array} { | l | l | } \hline \text { Investment required in equipment } & \$ 400,000 \\\hline \text { Annual cash inflows } & \$ 80,000 \\\hline \text { Salvage value } & \$ \quad 0 \\\hline \text { Life of the investment } & 10 \text { years } \\\hline \text { Discount rate } & 10 \% \\\hline\end{array}$$
-Which one of the following statements about the payback method of capital budgeting i? correct?

• A)The payback method considers cash flows after the payback has been reached.
• B)The payback method uses discounted cash flow techniques.
• C)The payback method does not consider the time value of money.
• D)The payback method will lead to the same decision as other methods of capital budgeting.

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