Which ONE of the Following Statements About the Payback Method

question 82

Multiple Choice

Which ONE of the following statements about the payback method is true?

• A) The payback method is consistent with the goal of shareholder wealth maximisation
• B) The payback method represents the number of years it takes a project to recover its initial investment plus a required rate of return.
• C) There is no economic rationale that links the payback method to shareholder wealth maximisation.
• D) None of the above statements are true.

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Definitions:

Valuation Allowance Accounts

Accounts used to reduce the carrying value of assets to an amount that approximates their fair value, especially when it is impossible to realize the entry value.

Balance Sheet Accounts

Financial accounts that are reported in the balance sheet, including assets, liabilities, and equity accounts, representing a company's financial position at a specific point in time.

Trading Investments

Securities bought and held primarily for selling them in the near term to profit from their price fluctuations.

Other Comprehensive Income

A component of total comprehensive income that includes unrealized gains and losses affecting shareholders' equity not included in net income.