A Disadvantage of the Payback Period Method of Investment Analysis

question 25

Multiple Choice

A disadvantage of the payback period method of investment analysis is that:

• A) it gives a crude measure of calculating risk.
• B) it is easy to understand.
• C) it ignores all cash inflows after the payback has occurred.
• D) all of these options are considered disadvantages.

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Definitions:

Producer Surplus

The additional income a producer receives for selling a good or service above its production cost.

Tax

A tax is a compulsory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization.

Consumer Surplus

The discrepancy between the amount consumers are prepared to spend on a product or service and the actual price they pay.

Consumer Surplus

The gulf between the aggregate amount consumers are willing to allocate for a good or service and what they actually end up paying.