Answered: The payback period method has been…

The payback period method has been criticized for not taking the time value of money into account. Could this limitation be overcome? If so, would this method then be preferable to the NPV method?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 3QTD

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Concept explainers

Application of Time Value of Money (TVM)

The time value of money can be incorporated either by discounting the future value or by using the present value to find the future value.

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The payback period method has been criticized for not taking the time value of money into
account. Could this limitation be overcome? If so, would this method then be preferable to the
NPV method?

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Which of the following is NOT a limitation of the payback rule? O It does not consider cash flows occurring after the payback period. O Lacks a decision criterion that is economically based. O It does not consider the time value of money. O It is difficult to calculate.
Which ones identify the disadvantages of the payback rule? A. Very simple and easy to apply. B. Ignores the time value of money. C. The cutoff payback is arbitrary. All of the above. B and C of the above.
Help pls
Why do some people say that MIRR should stand for Meaningless Internal Rate of Return?
The discounted payback method is better than the regular payback method because The time value of money is considered. The rate of return is allowed to vary. The concept is based on irregular time periods. None of the above.
One of the Disadvantages of the method Discounted payback period is Ignores the time value of money Select one: True False
Which of the following arguments about time line is right?Group of answer choices a)Time line can be construct for annuity only. b)Time line is useful no matter the payment is constant or not. C)Time line is useless when the cash flow is uneven. d)Time line is only useful when the payment is constant.
Why do the payback period analysis fail to recognize the difference between the present and future value of money?
What are the weaknesses of the payback method?
What is the principal objection to the payback method?
What are some criticisms of the payback method?
Which of following statements is CORRECT? The MIRR and NPV decision criteria can never conflict One reason some people prefer the MIRR to the regular IRR is that the MIRR is based on generally more reasonable reinvestment rate assumption. The IRR method can never be subject to the multiple IRR problem. while the MIRR method can be. I higher the WACC, the shorter the discounted payback period The MIRR method assumes that cash flows are reinvested at the crossover rate.