alleryStart learning →A method that ignores the time value of money treats a dollar received in five years as:
AImpossible to count
BEqual to one today
CWorth much more
DWorth exactly zero
Answer & Solution
Correct answer: B. Equal to one today
1. Ignoring the time value means no discounting is applied.
2. The payback method does not consider the effects of the time value of money.
3. Discounting would reduce the weight of distant cash flows.
4. Without it, a distant dollar counts the same as one received today.
_Source: OpenStax Principles of Accounting, Volume 2: Managerial Accounting (CC BY-NC-SA 4.0), Ch 11 'Capital Budgeting Decisions'_
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