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The lesson critiques the pay back decision criterion on a specific structural ground. What is the lesson's critique of the pay back method?
Answer & Solution
Correct answer: D.
1. The lesson critiques pay back as a decision criterion.
2. It ignores cash flows after the investment has been recovered.
3. Pay back assigns zero value to receipts subsequent to recovery of the initial amount.
4. It also fails the "bigger and better" principle by ignoring post-recovery returns.
5. The other statements misstate the pay back method.
_Source: ICSI CS Executive Paper 8 (Financial and Strategic Management) — Lesson 1: Nature, Significance and Scope of Financial Management, pp. 6-20._
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