Which of the Following Is a Limitation of the Payback

question 9

Multiple Choice

Which of the following is a limitation of the payback period?

• A)This method is complex to calculate.
• B)The cash flows after the payback period needed for the calculation are difficult to determine.
• C)This method ignores the time value of money.
• D)The discount rate used in the calculation may change before the end of the payback.

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Definitions:

Preferred Dividends

The dividends that are allocated and paid to preferred shareholders before any dividends can be distributed to common shareholders.

Retained Earnings

The portion of net income not distributed as dividends to shareholders, but instead reinvested in the company or kept as reserve.

Plant & Equipment, Net

The net book value of physical assets used in operations, after accounting for depreciation and disposals.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or the normal operating cycle of the business, whichever is longer.