Why Do Managers Suggest That Ignoring All Cash Flows Following

question 88

Multiple Choice

Why do managers suggest that ignoring all cash flows following the required payback period is not a major flaw of the payback method of capital budgeting analysis?

• A)Payback is never used in real practice so it makes no difference how academics apply the method in their studies.
• B)All projected cash flows after the required period are highly inaccurate so including them lessens the reliability of the resulting decision.
• C)If the cash flows after the required period are significant,managers will use their discretion to override the payback rule.
• D)All cash flows after the required period are relatively worthless in today's dollars so ignoring them has no consequence.
• E)Any consideration of the cash flows after the required period rarely has any effect on the accept/reject decision.

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