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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?
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.
@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
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