BACHELOR OF BUSINESS ADMINISTRATION

BUSINESS ADMINISTRATION

FINANCIAL MANAGEMENT

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
The greater net cash flows, the faster the payback period
A
TRUE
B
FALSE
Explanation: 

Detailed explanation-1: -The payback period is calculated by dividing the amount of the investment by the annual cash flow. Account and fund managers use the payback period to determine whether to go through with an investment. One of the downsides of the payback period is that it disregards the time value of money.

Detailed explanation-2: -Typically, a shorter payback period is considered better, since it means the investment’s risk level associated with the initial investment cost is only for a shorter period of time.

Detailed explanation-3: -NPV (Net Present Value) is calculated in terms of currency while Payback method refers to the period of time required for the return on an investment to repay the total initial investment. Payback, NPV and many other measurements form a number of solutions to evaluate project value.

Detailed explanation-4: -Which of the following is not true of the payback period method? It fails to take into account a project’s net cash flows after the payback period.

There is 1 question to complete.