Under the Payback Method of Analysis

question 110

Multiple Choice

Under the payback method of analysis:

• A) The initial cash outlay is ignored.
• B) The cash flow in year 3 is ignored if the required payback period is 4 years.
• C) A project's initial cost is discounted.
• D) The cash flow in year 2 is valued just as highly as the cash flow in year 1 as long as the required payback period is 3 years or more.
• E) A project will be acceptable whenever the payback period exceeds the pre-specified number of years.

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Definitions:

Present Value

The present worth of a future amount of money or series of cash flows, considering a certain rate of return.

Rate Of Return

A measure of the gain or loss on an investment over a specified period, expressed as a percentage of the investment’s initial cost.

Cash Flows

The net amount of cash being transferred into and out of a business, typically categorized into operating, investing, and financing activities.

Present Value

Present Value refers to the value today of an amount of money that is to be received in the future, adjusted for a certain rate of return.