Which of These Is Not an Advantage of the Payback

question 30

Multiple Choice

Which of these is not an advantage of the payback method of capital budgeting?

• A)It can be used to separate investments when other methods show similar returns
• B)A quick payback period reduces the risk of the investment
• C)The sooner cash is recovered the sooner it can be reinvested
• D)It looks at returns over the whole life of the investment

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Definitions:

Negative Net Cash Flow

A situation where a company's outgoing cash exceeds the incoming cash during a specific period, indicating potential financial trouble.

Financial Statements

Structured reports that detail the financial performance of an organization, typically including the balance sheet, income statement, and cash flow statement.

Depreciation Expenses

The allocation of the cost of tangible assets over their useful lives, recognized as an expense on the income statement.

Retained Earnings

Profits that a company chooses not to distribute as dividends to shareholders but instead reinvests in the business or keeps as reserve.