Which of the Following Is NOT a Limitation of the Payback

question 113

Multiple Choice

Which of the following is NOT a limitation of the payback rule?

• A)It does not consider cash flows occurring after the payback period.
• B)It is difficult to calculate.
• C)It does not consider the time value of money.
• D)It lacks a decision criterion that is economically based.

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Definitions:

Real Interest Rate

The interest rate adjusted for inflation, reflecting the true cost of borrowing or the true return on investment.

Nominal Interest Rates

are the stated interest rates on financial products or loans, not adjusted for inflation, indicating the actual rate of interest charged by lenders.

Real Interest Rates

The interest rate adjusted for inflation, reflecting the real cost of borrowing and the true return on savings.

Tax-exempt Interest Payments

Interest income that is not subject to federal income tax.