Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Payback period
- This topic has 3 replies, 2 voices, and was last updated 6 years ago by John Moffat.
- AuthorPosts
- June 7, 2017 at 6:27 pm #391518
Which of the following statements about investment appraisal methods is correct?
A The return on capital employed method considers the time value of money
B Return on capital employed must be greater than the cost of equity if a project is to be accepted
C Riskier projects should be evaluated with longer payback periods
D Payback period ignores the timing of cash flows within the payback periodD is the right answer but cannot figure out how in this world a payback period ignores the timing of cash flows?
June 8, 2017 at 7:32 am #391702Suppose a project was as follows:
0 (50,000)
1 10,000
2 40,000
3 20,000The payback period is 2 years.
Suppose instead the flows were:
0 (50,000)
1 40,000
2 10,000
3 20,000The payback period would still be 2 year.
The timing of the 50,000 during the payback period of 2 years is irrelevant.
June 9, 2017 at 1:38 am #392052@johnmoffat said:
Suppose a project was as follows:
0 (50,000)
1 10,000
2 40,000
3 20,000The payback period is 2 years.
Suppose instead the flows were:
0 (50,000)
1 40,000
2 10,000
3 20,000The payback period would still be 2 year.
The timing of the 50,000 during the payback period of 2 years is irrelevant.
Perfect explanation 🙂 Thanks
June 9, 2017 at 7:55 am #392100You are welcome 🙂
- AuthorPosts
- The topic ‘Payback period’ is closed to new replies.