Start learning →

What does payback ignore that can make a valuable project look poor?

AThe initial outlay
BCash flows after payback
CThe first year inflow
DThe payback year itself
Answer & Solution
Correct answer: B. Cash flows after payback
Payback stops counting once cost is recovered, so later cash flows from a long-lived asset are never considered.
Practise this question with Quill — CA Inter →

Keep practising Accounting Rate of Return

Browse all Accounting Rate of Return questions for CA Inter, or explore more Financial Management topics.

Start a Accounting Rate of Return lesson →
Related questions
Which measures do economists prefer over payback for return?Rs 9,00,000 is invested and net cash flow is Rs 1,80,000 a year. Payback?A: profit Rs 40,000 on average investment Rs 2,00,000. B: Rs 54,000 on Rs 3,60,000. HigherCost Rs 12,00,000 and scrap Rs 2,00,000. Average investment under ARR?Cost Rs 3,00,000, scrap Rs 60,000, 4 years, total profit Rs 1,44,000. ARR?Which goal underlies capital budgeting in corporate finance?Capital budgeting mainly concerns which type of spending?Companies create value when their return on capital is above what?