Which of the Following Is Not a Characteristic of the Payback

question 109

Multiple Choice

Which of the following is not a characteristic of the payback method for making capital budgeting decisions?

• A) It is easy to calculate and comprehend.
• B) It focuses primarily on liquidity, rather than profitability, of an investment project.
• C) It can be considered a rough measure of risk.
• D) It considers returns over the entire life of the project.
• E) It requires estimates of after-tax cash inflows and after-tax cash outflows.

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Definitions:

Profit Margin Ratio

A financial metric that measures the percentage of revenue that exceeds the cost of goods sold, indicating the profitability of sales.

Net Income

The total earnings of a company after deducting all expenses, taxes, and losses, indicating the company's profitability.

Net Sales

The revenue from sales after deducting returns, allowances for damaged or missing goods, and discounts.

Times Interest Earned

A metric that measures a company's ability to meet its interest payments on outstanding debt.