If the Traditional Payback Period Method Is Used to Evaluate

question 38

Multiple Choice

If the traditional payback period method is used to evaluate a capital budgeting project, the project is considered acceptable if _____. 

• A)the total cash inflows yield a rate of return more than the expected rate of return from the project
• B)the payback period is longer than the life of the project
• C)there are no cash outflows during the payback period
• D)discounted value of cash inflows is less than the initial investment
• E)the payback period is less than the maximum cost-recovery time established by the firm

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Definitions:

Recoverable Amount

The higher of an asset's fair value less costs to sell and its value in use, indicating the maximum amount that can be recovered from an asset.

Financial Statements

Documents that provide an overview of a company's financial condition, including income statement, balance sheet, and cash flow statement.

Cash-generating Unit

The smallest identifiable group of assets that generates cash inflows largely independent of the cash inflows from other assets or groups of assets.

Average Tax Rate

The proportion of total income that an individual or corporation pays in taxes.