Which of the Following Is a Correct Statement About the Traditional

question 31

Multiple Choice

Which of the following is a correct statement about the traditional payback period (PB) method that is used to evaluate capital budgeting projects?

• A)To compute a project's PB, simply add up the expected cash flows for each year until the cumulative value equals the amount that is initially invested.
• B)To compute a project's PB, simply add up the discounted cash flows for each year until the cumulative value equals the amount that is initially invested.
• C)The PB gives a direct measure of the dollar change in the firm's value if the project is purchased.
• D)The PB considers the time value of money.
• E)The PB does not provide information about the risk associated with the recapture of the original amount invested in a project.

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Definitions:

Batch

A set of goods or materials processed or produced at the same time, often used in the context of batch processing.

Split-Off Point

That point in the manufacturing process where some or all of the joint products can be recognized as individual products.

Sales Value

The total revenue attained from goods or services sold, calculated by multiplying the selling price by the number of units sold.

Absorption Costing

A costing method where all manufacturing costs, both fixed and variable, are allocated to products, thus "absorbing" them into the cost of goods sold.