A Characteristic of the Payback Method Is That It

question 102

Multiple Choice

A characteristic of the payback method is that it

• A) Cannot incorporate into the calculation the time value of money.
• B) Neglects total project profitability (i.e., profitability over the entire life of the project).
• C) Uses accrual accounting numbers in the numerator of the calculation.
• D) Uses the estimated life of the asset in the denominator of the calculation.
• E) Uses the hurdle (i.e., discount) rate in the calculation.

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Definitions:

Competitive Market

A market structure characterized by many buyers and sellers, free entry and exit, and a product for which each seller offers an essentially identical item.

Efficient Outcomes

An economic condition whereby resources are allocated in the most effective manner, maximizing overall welfare.

Demand Curves

Graphic representations showing the relationship between the price of a good or service and the quantity of that good or service people are willing and able to buy.

Supply Curves

A graphical representation of the relationship between the price of a good or service and the quantity supplied for a given period.