Which of the following statements is CORRECT? The shorter a project\'s payback p

Question

Which of the following statements is CORRECT? The shorter a project's payback period, the less desirable the project is normally considered to be by this criterion. One drawback of the payback criterion is that this method does not take account of cash flow beyond the payback period. If a project's payback is positive, then the project should be accepted because it must have a positive NPV. The regular payback ignores cash flows beyond the payback period, but the discounted pa>back method overcomes this problem. 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

CORRECT STATEMENT IS ONE DRAWBACK OF THE PAYBACK CRITERTION IS THAT THIS METHOD DOES NOT TAKE ACCOUNT OF CASHFLOWS BEYOND THE PAYBACK PERIOD.

NORMAL PAYBACK METHOD DOES NOT CONSIDER THE CASH FLOW BEYOND THE PAYBACK PERIOD, BUT THE FACT IS THE CASH FLOW BEYOND THE PAYBACK PERIOD CAN PUT A HUGE EFFECT ON THE DECESSION MAKING.

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