The Payback Method

question 17

Multiple Choice

The payback method:

• A) fails to explicitly consider the time value of money.
• B) is the amount of time it takes for a project to recoup its profits.
• C) is the best method for evaluating complex projects.
• D) is never used by businesses today.

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Definitions:

Operating Income

The profit realized from a business's core operations, excluding deductions of interest and taxes.

Variable Cost

A cost that changes in proportion to the level of activity or volume of output in a business.

Capacity

In finance, the ability of an individual or organization to repay a loan or meet financial obligations.

Fixed Costs

Costs that do not vary with the volume of production or sales, such as rent, salaries, and insurance.