Which of the following statements is CORRECT? Assume that the project being cons

Question

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows. A. The shorter a project's payback period, the less desirable the project is normally considered to be by this criterion. B. One drawback of the payback criterion for evaluating projects is that this method does not take into account cash flows beyond the payback period. C. If a project's payback is positive, then the project should be accepted because it must have a positive NPV. D. The regular payback ignores cash flows beyond the payback period, but the discounted payback method overcomes this problem. F. One drawback of the discounted payback is that this method does not consider the time value of money, while the regular payback overcomes this drawback

Explanation / Answer

d. One drawback of the payback criterion is that this method does not take account of cash flows beyond the payback period.

Reason: Payback also ignores the cash flows beyond the payback period, thereby ignoring the profitability of the project. Thus, one project may be more valuable than another based on future cash flows, but the payback method does not capture this.

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