Disadvantages of the Payback Method Include the Following

question 9

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 maximizing shareholder wealth.
• C) It ignores cash flows beyond the payback period.
• D) All of the above.

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Definitions:

Book Value

Book Value is the value of an asset as it appears on the balance sheet, calculated as the cost of an asset minus any depreciation or amortization.

Significant Influence

Refers to the capacity of an investor to affect the financial and operating policies of an investee through ownership, without having complete control.

Common Stock

A type of equity ownership in a corporation, representing a claim on a portion of its profits and assets.

Significant Influence

The power to participate in the financial and operating policy decisions of an investee, but not control those policies, typically associated with owning a significant but not majority share of the investee.