alleryStart learning →The payback method is described as limited because it does not consider the effects of:
AThe number of employees
BThe choice of auditor
CThe time value of money
DThe corporate tax rate
Answer & Solution
Correct answer: C. The time value of money
1. The payback method has one well-known weakness.
2. The payback method considers only the time frame to recoup an investment.
3. It is limited in that respect.
4. It does not consider the effects of the time value of money.
_Source: OpenStax Principles of Accounting, Volume 2: Managerial Accounting (CC BY-NC-SA 4.0), Ch 11 'Capital Budgeting Decisions'_
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