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:

Short Run

A time period in economics during which at least one input is fixed and cannot be changed.

Economic Profit

The difference between total revenue and both explicit and implicit costs; the profit that exceeds the opportunity cost of resources.

Perfectly Competitive Markets

Markets in which no individual buyer or seller has any significant impact on prices and products are perfect substitutes.

Minimum ATC

The lowest point on the Average Total Cost curve, indicating the most efficient scale of production for a firm in the long run.