Disadvantages of the Payback Method Include the Following

question 11

Multiple Choice

Disadvantages of the payback method include the following:

• A) It ignores the time value of money.
• B) It is inconsistent with the goal of maximising shareholder wealth.
• C) It ignores cash flows beyond the payback period.
• D) All of the above.

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Definitions:

Merchandise Inventory

The collection of goods a company has in stock and available for sale to customers.

Accounts Receivable

Funds that customers owe to a business for products or services that have been provided but remain unpaid.

Indirect Method

A way of preparing the cash flow statement where net income is adjusted for non-cash transactions to calculate net cash from operating activities.

Operating Activities

Transactions related to the primary activities of a business, such as selling goods and services, which are reflected in the cash flow statement.