A Disadvantage of Using the Payback Period to Compare Investment

question 107

Multiple Choice

A disadvantage of using the payback period to compare investment alternatives is that:

• A) It cannot be used when cash flows are not uniform.
• B) It cannot be used if a company records depreciation.
• C) It includes the time value of money.
• D) It cannot be used to compare investments with different initial investments.
• E) It ignores cash flows beyond the payback period.

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Definitions:

Divisible

Capable of being divided or separated into smaller components or parts.

Pygmalion Effect

The phenomenon where higher expectations lead to an increase in performance; a form of self-fulfilling prophecy.

Perceptual Distortion

A cognitive bias or error that affects the accuracy of one's perception or interpretation of reality.

Vicarious Learning

The process of learning by observing the actions and outcomes of others rather than through direct experience.