The Payback Method Has Several Disadvantages, Among Them

question 20

Multiple Choice

The payback method has several disadvantages, among them:

• A) Payback fails to choose the optimum or most economic solution to a capital budgeting problem.
• B) Payback ignores cash inflows after the payback period.
• C) Payback fails to choose the optimum or most economic solution to a capital budgeting problem, and it ignores cash inflows after the payback period.
• D) None of these options are disadvantages.

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Definitions:

Corporate Tax Rate

The tax imposed on the net income of a corporation, varying by country and sometimes by industry or revenue size.

Discount Rate

The interest rate used in discounted cash flow analysis to determine the present value of future cash flows.

Commercial Banks

Financial institutions that offer a wide range of banking services to businesses and consumers, including deposit accounts and loans.

Short-Term Loans

Loans that are scheduled to be repaid in less than a year, used to meet immediate financial needs or cash flow shortages.