Which of the following statements is correct?
The regular payback method was, years ago, widely used, but virtually no companies
even calculate the payback today
counted payback method recognizes all cash flows over a project’s life, and it
also adjusts these cash flows to account for the time value of money
The regular payback does not consider each cash flows beyond the payback year, but
the discounted payback overcomes this defect
The regular payback method recognizes all cash flows over a project’s life
The regular payback is useful as an indicator o
f a project’s liquidity because it gives
managers an idea of how long it will take to recover the funds invested in a project
The first choice is not correct.
Actually, many firms employ the regular payback period as a
capital budgeting technique.
See this study if you are interested:
The second choice is not correct.
This is because either discounted payback or regular payback
does not consider all cash flows beyond payback period.
The third choice is not correct. The reason is the same as the second choice.