What weaknesses are commonly associated with the use of the payback period to evaluate a proposed investment? | Homework.Study.com (2024)

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• 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 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.
• How are timelines helpful in evaluating capital projects? What does the payback method measure? What are its major weaknesses? What is the distinction between a return of capital and a return on capital?
• What are the advantages and disadvantages of investment appraisal techniques?
• What are the primary strengths and weaknesses of the payback approach in capital budgeting?
• 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) What does the payback method measure? B) What are its major weaknesses?
• What are the strengths and weaknesses of the accounting rate of return approach?
• 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
• What are the limitations of the payback period as a capital-budgeting technique?
• What two factors affect the return on short-term investments?
• What are some of the disadvantages of the payback rule in capital budgeting?
• A) What are three potential flaws with the regular payback method? B) Does the discounted payback method correct all three flaws? Explain.
• 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 concept of valuation, and how does it incorporate the time value of money and the risk of return principles?
• What are the main shortcomings of the payback method?
• What are three potential flaws with the regular payback method? Does the discounted payback method correct all three flaws?
• Explain the payback period statistic. What is the acceptance benchmark when using the payback period statistic?
• What two factors affect the return on short-term investments? What investments should you consider to achieve liquidity and adequate?
• What two factors affect the return on short-term investments? What investments should you consider to achieve liquidity and an adequate return?
• List four advantages and four disadvantages of the discounted payback period rule.
• 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
• Explain the time value of money concept and how it affects an investment program.
• Which of the following methods does not consider the investment's profitability? a. ROR b. Payback c. NPV d. IRR
• 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.
• The payback period capital-budgeting criterion is often used as a risk screening device. Explain the rationale behind its use.
• One of the disadvantages of the payback method is that it ignores time value of money. True 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.
• What are the two main disadvantages of discounted payback?
• 1. How does the passive strategy for bond investment work? 2. What is the main disadvantage of this strategy?
• Describe weaknesses and inconsistencies in accounting for noncurrent security investments that are relevant for analysis purposes.
• What are the strength and weaknesses of each of the capital budgeting techniques?
• What are the three potential flaws with the regular payback method? Why do companies use the payback method? (200 word response)
• What are the advantages of payback period? Why is it so frequently used?
• What are possible drawbacks associated with not considering opportunity costs and the time value of money when making financial decisions?
• What causes the time-disparity ranking problem? What reinvestment rate assumptions are associated with the NPV and IRR capital-budgeting criteria?
• Describe weaknesses and inconsistencies in accounting for noncurrent security investments.
• (a) What is the main risk of buying or borrowing capital to invest in an asset? (b) What financial factors should you consider when deciding to borrow capital?
• What major advantage does the discounted payback have over the regular payback period?
• Describe the advantages and disadvantages of each method of the following: internal rate of return (IRR), net present value (NPV), and the payback method.
• A) What would be the effect of ignoring the time value of money when making risk management decisions? B) What does the net present value of a loss control investment really represent to the owners of
• What is the optimum value of a capital budgeting technique? What effect should the best (most effective) technique have? What are the most prevalent techniques used? Their strengths and weaknesses?
• Explain the relative significance of the unadjusted payback period in this decision situation.
• What are the parameters considered in capital investment evaluation?
• What information does the payback period provide?
• List three methods of deriving duration estimates for project activities. What are the strengths and weaknesses associated with each method?
• What is an investment decision-making device that compares the initial cost of an investment to its discounted cash flows?
• True or False: A disadvantage of the payback method is that it does not consider which investment is the most profitable.
• What are the strengths and weaknesses of debt and equity financing?
• Which of the following methods helps to "size" the investment? A. Payback B. Present value payback C. Present value index D. IRR E. None of the above
• What are the redeeming qualities and problems with IRR method?
• What are disadvantages of the regular payback method?
• What are the purposes and uses of assets? What is the main risk of buying or borrowing capital to invest in an asset? What financial factors should you consider when deciding to borrow capital?
• What might be some drawbacks to using a SWOT analysis in reviewing non-financial factors?
• What considerations do you need to take when considering "time value of money"? With regards to money: What are the differences between future value and present value?
• What are the principal strengths and weaknesses of the different loan-pricing methods in use today?
• What are the three components of an investor's required rate of return on investment?
• What are the three components of an investor's required rate of return on an investment?
• What are the main weaknesses in financial planning models? Provide some examples.
• What are the major shortcomings of using the ARR method as a capital budgeting method?
• Identify one primary strength and one primary weakness for each of the following methods of investment analysis: a.) net present value b.) internal rate of return c.) payback
• What is the difference between traditional and modern methods of investment appraisal?
• What are the critical assumptions in the Capital Asset Pricing Model (CAPM)? Explain.
• Explain why the timing and quantity of cash flows are important in capital investment decisions.
• Why can we not use different compounding periods when comparing alternatives in the present or future worth methods? Give an example of how different compounding periods will affect the selection of a
• What is meant by time value of money? Explain the role of this concept in valuation.
• One of the key reasons for the time value of money is risk. What is risk aversion? How can we measure it? Why is it important to financial decision making?
• What sort of depreciation is important in the assessment of a project?
• What insight does ROI give into investment performance?
• Explain why the alternative that recovers its initial investment at a specified rate of return in the shortest time is not necessarily the most economically attractive one.
• Which capital investment technique do you favor? Why?
• Discuss the idea of a sinking fund. How is it related to time value?
• Explain compounding and discounting as two time value of money concepts. Explain the types of annuities and compare two of them. Why are these concepts important for managers and investors to build we
• Explain why holding period return, as an economic measure, does not have the same significance as current yield or yield to maturity.
• What is the difference between NPV, IRR, Payback analysis, and how are these methods related?
• What are the two major shortcomings of DSO and accounts receivable turnover? Which of these also plagues the aging schedule.
• Explain a capital budgeting method (NPV, IRR, etc.) used to examine potential investments. Explain the advantages and disadvantages. Explain which capital budgeting method is superior and why. Explain
• With 20-20 hindsight, what was the best investment for the period 1926 - 1935?
• What is the fundamental weakness of the GAP ratio, as compared with GAP as a measure of interest rate risk?
• What is one of the primary weaknesses of many financial planning models?
• What considerations motivated FASB's 2001 decision to disallow the amortization of goodwill on the income statement?
• Identify the major problems that are currently present in tax-deferred retirement plans.
• How does one define the amortization expense period if the intangible asset doesn't intrinsically hold one?
• 1. What is an opportunity cost? 2. How is this concept used in TVM analysis, and where is it shown on a time line? 3. Is a single number used in all situations? Explain
• Explain how the depreciation percentages are determined by using the MACRS recovery periods.
• (a) What is the desired rate of return? (b) How would it be used to make an investment decision?
• Describe and discuss the saving-investment cycle.
• What are the factors you consider before buying stock for long term investment?
• Why are time-based depreciation methods used more frequently than activity-based methods?
• What are the potential faults in using the IRR as a capital budgeting technique? Given these faults, why is this technique so popular among corporate managers?
• What are the advantages and disadvantages of NPV?
• Discuss the pros and cons of annuities when compared with other financial instruments and whether they provide a better investment opportunity for some people.
• What are the MIRR s advantages and disadvantages as compared to the NPV?
• What is the primary determinants on an investment's cost of capital?
• 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 are the comparative advantages and disadvantages of value and momentum investing?
• a. What is the basic advantage of depreciation? b. All else the same, would a firm generally prefer to depreciate an asset as fast as possible, or not as fast as possible? Why?
• List any advantages or disadvantages of: The presence of a sinking fund.
• Compare and contrast the NPV, PI, and IRR criteria. What are the advantages and disadvantages of using each of these methods?
• What are the advantages and disadvantages of short-term financing?