What Is a Drawback of the Payback Period

question 68

Multiple Choice

What is a drawback of the payback period?

• A) It uses a set discount rate.
• B) It ignores a project's total profitability.
• C) It uses before-tax cash flows rather than after-tax cash flows.
• D) It considers total profitability, requiring the forecasting of all future cash flows.

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Definitions:

GAAP

Generally Accepted Accounting Principles, a standardized set of accounting rules, standards, and procedures used in the accounting industry primarily in the United States.

Purchase Accounting

The process of consolidating and reporting the financials of a merger or acquisition by recording the assets and liabilities at their fair market values.

Business Combination

A transaction or other event in which an acquirer gains control over one or more businesses.

Consolidated Balance Sheet

A financial statement that combines the assets, liabilities, and equity of a parent company and its subsidiaries into one document.