One of the disadvantages of the payback method is that it ignores time value of money. True False | Homework.Study.com (2024)

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• True or False: A disadvantage of the payback method is that it does not consider which investment is the most profitable.
• A) What are the two main disadvantages of discounted payback? B) Is the payback method of any real usefulness in capital budgeting decisions? Explain.
• A major disadvantage of the discounted payback period is the arbitrariness of the process used to select the maximum desired payback period. True False
• What is a significant disadvantage of the payback period? \\ a. Does not properly consider the time value of money. b. Is complicated to explain. c. Increase firm risk. d. Provides a measure if liquidity.
• Payback is not an effective way to cope with risk. True False Explain.
• What are the disadvantages of using the payback period as a capital-budgeting technique? What are its advantages? Why is it so frequently used?
• What are the Advantages and Disadvantages of Simple Payback?
• State true or false and justify your answer: Times interest earned is an example of a profitability ratio.
• What are disadvantages of the regular payback method?
• What are the two main disadvantages of discounted payback?
• What are the advantages of payback period? Why is it so frequently used?
• Describe the advantages and disadvantages of each method of the following: internal rate of return (IRR), net present value (NPV), and the payback method.
• What are some of the disadvantages of the payback rule in capital budgeting?
• A principle disadvantage of a stock bonus plan is net unrealized appreciation. \\ a. True b. False
• True or False: A bond that has a sinking fund has both advantages and disadvantages to the bondholder, but on balance the advantages outweigh the disadvantages, resulting in a higher yield for such bo
• True or false? The payback rule is based on the idea that an opportunity that pays back its initial investment quickly is a worthwhile opportunity.
• The opportunity cost of capital is higher for safe investments than for risky ones. a. True b. False
• A significant disadvantage of the payback period is that it: a) Is complicated to explain. b) Increases firm risk. c) Does not properly consider the time value of money. d) All of the above. e) None of the above.
• Residual income is another term for economic value added. a. True b. False
• A) What are three potential flaws with the regular payback method? B) Does the discounted payback method correct all three flaws? Explain.
• List four advantages and four disadvantages of the discounted payback period rule.
• Two advantages of investing in capital assets are: (1) gains are generally deferred and (2) gains are generally taxed at preferential rates. a. True b. False
• What are three potential flaws with the regular payback method? Does the discounted payback method correct all three flaws?
• What major advantage does the discounted payback have over the regular payback period?
• Four of the following statements are truly disadvantages of the regular payback method, but one is not a disadvantage of this method. Which one is NOT a disadvantage of the payback method? Explain. a.
• A significant advantage of the payback period is that it?
• What are the main shortcomings of the payback method?
• State true or false and justify your answer: The use of financial leverage must consider risk, not just maximizing profit.
• Because of the time value of money, the longer before an option expires, the less valuable the option will be, other things held constant. True False Explain.
• The term "opportunity" in opportunity cost of capital comes from the fact that any worthwhile opportunity for investment will have a cost: the risk to the capital invested. a. True b. False
• What weaknesses are commonly associated with the use of the payback period to evaluate a proposed investment?
• State true or false and justify your answer: Timing is not a particularly important consideration in financial decisions.
• True or false: The NPV is a measure of risk, not wealth.
• The payback period may be more appropriate to use for companies experiencing capital rationing. True False
• What is the rationale for the payback method? Explain.
• It is possible that an IRR does not exist for an investment opportunity. True or False?
• One of the most popular capital-budgeting techniques is the payback method. How does this method work? Give an example. Explain the advantages and disadvantages of this method.
• What is an advantage of the accounting rate of return?
• True or false? The "cost" referred to in the concept of opportunity cost is always monetary.
• What are the three potential flaws with the regular payback method? Why do companies use the payback method? (200 word response)
• List and compare all advantages and disadvantages of Payback Period Rule, Average Accounting Return, Internal Rate of Return, and Profitability Index.
• One of the steps in cost-benefit analysis is distinguishing time frames. A) True B) False C) Uncertain
• Is the payback method useful in capital budgeting decisions? Explain.
• True or false? As per the first valuation principle, the value of a business does not change over time.
• The terms income, earnings, and profit are used interchangeably. True or false?
• True or false? Opportunity costs refer to money already spent.
• If a project has multiple internal rates of return, the lowest rate should be used for decision making purposes. True False Explain.
• True or false? Capital expenditures are generally long-term and expensive.
• What are possible drawbacks associated with not considering opportunity costs and the time value of money when making financial decisions?
• Discuss the advantages and disadvantages of fair value accounting.
• What are the major criticisms of the payback and simple rate of return methods? In what situations are these financial tools useful? Choose a particular type of industry and explain why it would benef
• What is the rationale for the payback method?
• Suppose a firm relies exclusively on the payback or discounted payback period methods when making capital budgeting decisions. What benefit does the approach of using payback methods provide and what
• State true or false and justify your answer: The present value of a $100 perpetuity discounted at 5% is $5,000.
• Explain the payback period model and its two significant weaknesses. How does the discounted payback period model address one of the problems? 250 or more words
• The time value of money is ignored by the payback period and the ARR. Explain why this is a major deficiency in these two models.
• A) What does the payback method measure? B) What are its major weaknesses?
• State true or false and justify your answer: The goal of profit maximization ignores the risk of financial decisions.
• Return on assets is always a larger number than the return on equity. a. True b. False
• What are the advantages and disadvantages of short-term financing?
• Risk is reduced when a high proportion of costs are fixed. True or false?
• A pro forma financial statement is an estimated future financial statement. a. True b. False
• State true or false and justify your answer: Higher return always induces stockholders to invest in a company.
• List the advantages and disadvantages of long-term debt financing.
• How is the time value of money related to opportunity costs?
• State true or false and justify your answer: Recently, the emphasis of financial management has been on the relationship between risk and return.
• Which of the following statements about the payback model is false? a) The payback model measures how quickly investment dollars may be recouped. b) The payback model provides a rough estimate of the
• Under what conditions would the payback and discounted payback methods produce identical results?
• The best approach to forecasting future performance is to focus only on the company's past earnings. a. True b. False
• The personal value of an asset has nothing to do with the economic benefit it produces. True False
• What is the payback period? Explain.
• State true or false and justify your answer: Level production schedules usually have the advantage of reducing overall production costs.
• State true or false and justify your answer: Financial leverage primarily affects the left-hand side of the balance sheet.
• What are some advantages and disadvantages of using residual income (including economic profit and EVA) for performance measurement?
• State true or false and justify your answer: Corporate managers should accept investment projects that maximize profits in the short run because of the time value of money.
• What are the comparative advantages and disadvantages of value and momentum investing?
• What are the advantages and disadvantages of investment appraisal techniques?
• What are the advantages and disadvantages of NPV?
• State true or false and justify your answer: Heavy use of long-term debt can be of benefit to a firm.
• State true or false and justify your answer: Operating income is not the same thing as EBIT.
• Determine if the following statement is true or false and explain: There are three methods for estimating the cost of common stock from retained earnings: the CAPM method, the DCF method, and the bond-yield-plus-risk-premium method. Since we cannot be sur
• True or False: The use of the optimum capital structure minimizes the cost of capital.
• NPV produces a percentage result that is easy to describe. True False Explain.
• Explain the time value of money concept and how it affects an investment program.
• The advantages of NPV are all of the following EXCEPT: a. it allows the comparison of benefits and costs in a logical manner through the use of time value of money principles. b. it provides the amo
• Costs and benefits must be put in common terms if they are to be compared. a. True b. False
• True or False: Discounting is the same concept as multiplying a future value by a factor that is greater than one.
• Describe the upsides and downsides to the use of financial leverage.
• Benchmarking is an analysis in which a firm's financial performance over time is evaluated using financial ratio analysis. True or False?
• An efficient market is one in which no one ever profits from having better information than the rest. Is this statement true, false, or uncertain? Explain your answer.
• Which of the following methods does not consider the investment's profitability? a. ROR b. Payback c. NPV d. IRR
• State true or false and justify your answer: The weak form of the efficient market hypothesis states that an investor can profit by using past price data.
• A low price/earnings multiple indicates that the cost of equity financing is low. True or False?
• RANGE RESOURCES CORP 5.75% 1-Jun-21 with a yield of 7.05% is clearly a better investment than CONCHO RESOURCES INC 6.50% 15-Jan-22 with a yield of 6.84%. True or False?
• What is the difference between the regular and discounted payback methods?
• One of the disadvantages of incorporating a business is that the owners then become subject to liabilities in the event the firm goes bankrupt. a. True b. False
• Both business risk and financial risk would exist with or without either type of leverage. Leverage just makes them more significant. Are those statements true or false? Explain.
• Both business risk and financial risk would exist with or without either type of leverage. Leverage just makes them more significant. Are these statements true or false? Explain.
• True or false? Opportunity costs are only associated with money management decisions involving long-term financial security.
• What are the advantages and disadvantages of the profitability index?