If the Discounted Payback Method Is Preferable to the Payback

question 18

Multiple Choice

If the discounted payback method is preferable to the payback method,then why is the payback method ever used?

• A)The discounted payback requires an arbitrary cutoff point while payback does not.
• B)Payback is easier to compute than discounted payback.
• C)Payback considers all of a project's cash flows but discounted payback does not.
• D)Payback requires the initial investment be recovered during a project's life while the required discounted payback period may be shorter.
• E)Payback can be used with mutually exclusive projects but discounted payback cannot.

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Definitions:

Asset

An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide future benefit.

Expense

Money spent or cost incurred in an entity's efforts to generate revenue, representing the cost of doing business.

Trial Balance

An accounting report that lists the balances of all general ledger accounts at a particular point in time to check the accuracy of bookkeeping entries.

Income Statement

A financial statement that shows a company's revenues, expenses, and profit over a specific period.