Which of the following statements indicates a disadvantage of using the regular, or conventional, payback period for capital budgeting decisions? Check all that apply. A. The payback period does not take into account the cash flows produced over a project’s entire life. B. The payback period does not take into account the time value of money effects of a project’s cash flows. C. The payback period is calculated using net income instead of cash flows.

Business · College · Mon Jan 18 2021

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The disadvantages of using the regular payback period for capital budgeting decisions include:

A. The payback period does not take into account the cash flows produced over a project’s entire life.

B. The payback period does not take into account the time value of money effects of a project’s cash flows.

These limitations make the payback period less comprehensive in assessing the profitability and value of a project, as it overlooks the cash flows beyond the payback period and doesn't consider the time value of money.

Statement C is not entirely accurate regarding the conventional payback period method. The payback period is based on cash flows rather than net income. However, it focuses on the time required to recover the initial investment, not necessarily using net income in its calculation.

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