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 period
D is the right answer but cannot figure out how in this world a payback period ignores the timing of cash flows?
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Payback period
9y ago#1Suppose a project was as follows:
0 (50,000)
1 10,000
2 40,000
3 20,000
The payback period is 2 years.
Suppose instead the flows were:
0 (50,000)
1 40,000
2 10,000
3 20,000
The 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 20,000 The payback period is 2 years. Suppose instead the flows were: 0 (50,000) 1 40,000 2 10,000 3 20,000 The 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
9y ago#3You are welcome :-)
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