A Problem with the Payback Method Is

question 58

Multiple Choice

A problem with the payback method is:

• A) it assigns a 0 percent discount rate to cash flows that occur before the cutoff point.
• B) it assigns a 10 percent discount rate to cash flows that occur before the cutoff point.
• C) it assigns a 20 percent discount rate to cash flows that occur before the cutoff point.
• D) it assigns a 30 percent discount rate to cash flows that occur before the cutoff point.

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Definitions:

Law of Diminishing Returns

A principle stating that as one factor of production is increased while others are held constant, there comes a point at which the marginal gain in output begins to decrease.

Long Run

A period in which all factors of production and costs are variable, allowing for complete adjustment to changes.

Commercial Aircraft

Airplanes designed specifically for carrying passengers and/or cargo for commercial airlines.

Ready-Mix Concrete

Concrete that is manufactured in a factory or batching plant, according to a set recipe, and then delivered to a worksite by truck mounted in–transit mixers.