A Significant Deficiency of the Payback Method of Analyzing Alternatives

question 48

True/False

A significant deficiency of the payback method of analyzing alternatives is the failure to account for the time value of money.

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Definitions:

Accounting Period

The specific period of time covered by financial statements, typically a year or a quarter, for which all financial transactions are recorded and reported.

Straight-line

A method of depreciation that allocates an equal expense rate to each year of an asset’s useful life.

Accelerated Methods

Depreciation methods that allocate more depreciation expense to the earlier years of an asset's life.

Depreciation

Strategically spreading out the cost of a tangible asset throughout its period of usefulness.