Which of the Statements Below Is TRUE of the Payback

question 89

Multiple Choice

Which of the statements below is TRUE of the payback period method?

• A)It ignores the cash flow after the initial outflow has been recovered.
• B)It is biased against projects with early-term payouts.
• C)It incorporates time-value-of-money principles.
• D)It focuses on cash flows after the initial outflow has been recovered.

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Definitions:

Present Value

The current worth of a future sum of money or stream of cash flows, given a specified rate of return.

Net Present Value

A financial metric used to evaluate the profitability of an investment or project, calculated by subtracting the initial investment from the present value of future cash flows.

Internal Rate Of Return

The discount rate at which the net present value of an investment project is zero; the rate of return promised by a project over its useful life.

Discount Rate

The rate of interest employed to calculate today's value of anticipated future cash streams in discounted cash flow evaluation.